The official Investor and Exporter window of the foreign exchange market have witnessed a significant decline in the value of the naira against the dollar, losing 26.36% since the Central Bank of Nigeria (CBN) announced the clearance of $2 billion as part of its backlog obligations.
On Monday, the CBN revealed that it had settled $2 billion from its outstanding forward contract obligations, concurrently disbursing $61.64 million to foreign airlines as part of matured foreign exchange obligations.
Hakama Sidi Alia, the CBN Acting Director of Corporate Communications, emphasized that these payments were part of the ongoing efforts to address the country’s exchange rate pressures and enhance investor confidence in the Nigerian economy. The expectation was that this initiative would contribute to strengthening the naira against other major world currencies.
However, contrary to the anticipated positive impact, the naira closed trading at N1082.32/$ on Wednesday, marking a 26.36% depreciation since the announcement. This followed Monday’s closing rate of N856.57/$, indicating a rapid decline.
The latest figure represents a slight increase of 0.66% from Tuesday’s closing rate of N1089.51/$. It is the fifth instance the naira has exceeded the N1000 mark on the official window since the removal of the rate cap by the Central Bank of Nigeria.
Despite renewed efforts to inject liquidity into the foreign exchange market, evidenced by the Federal Government’s receipt of a $2.25 billion foreign exchange support facility from the African Import-Export Bank, the naira’s value continues to experience volatility.
Wale Edun, the Minister of Finance and Coordinating Minister of Economy, had disclosed at the end of 2023 that the facility aimed to address foreign exchange shortages in the economy. However, the naira’s persistent depreciation suggests ongoing challenges in the foreign exchange supply.
Dr. Ayo Teriba, the CEO of Economic Associates, attributes the naira’s volatility to insufficient foreign exchange supply, low and declining reserves, and the CBN’s arrears on some obligations. While efforts have been made to clear these arrears, he emphasizes the need for more openness to investors to address the supply issues.
In response to the current scenario, Prof. Adeola Adenikinju, the President of the Nigerian Economic Society, anticipates more stability for the naira in 2024. He cites factors such as the operation of local refineries reducing forex demand, increased government revenue generation, and improvements in oil production as potential stabilizing influences.
However, Financial Derivatives Company projects continued pressure on the naira in 2024 due to limited CBN firepower to defend the currency. In a document titled ‘2024: The Hard Road Ahead,’ it suggests a potential fall towards N1,350/$ before a rebound in the second quarter.
