Nigeria’s naira among world’s worst-performing currencies —Bloomberg

Nigeria’s local currency, the naira, has joined the ranks of the world’s worst-performing currencies, according to a Bloomberg report.

The naira’s poor performance is mirrored by other African currencies, including the Zambian kwacha and the Angolan kwanza, with five African currencies in the bottom 10.

The report cited economic challenges, volatile commodity prices, inflationary pressures and a lack of dollar liquidity as key factors contributing to the decline.

“The underperformance of African currencies was largely due to economic challenges, volatile commodity prices, inflationary pressures and a lack of dollar liquidity,” Bloomberg noted.

Keonethebe Bosigo, portfolio manager at Mazi Asset Management, attributed the naira’s poor performance to poor currency management and imbalances.

“Oil prices are not the only problem, although they are a major factor. The real culprit is poor currency management and imbalances,” Bosigo said.

Bosigo stressed that the naira’s overvaluation and subsequent loss of confidence occurred because the currency was not allowed to adjust.

“Oil prices are one factor, but the real problem is that the naira is not being allowed to adjust, which is causing it to become overvalued and further losing confidence in the currency,” he added.

Irmgard Erasmus, an economist at Oxford Economics, agreed, saying the naira was facing significant pressure despite reforms aimed at liberalizing the current account.

“The naira remains undervalued relative to its long-term neutral value due to ongoing issues around liquidity and dollar supply,” Erasmus said.

Erasmus attributed the naira’s struggles to falling Brent crude prices, tightening regulations on the banking sector and risk aversion.

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“The slow pace of government reforms, combined with haphazard monetary policy, continues to keep the currency in undervalued territory,” Erasmus noted.

In his analysis, Erasmus suggested that the naira should be trading closer to N1,100 per dollar if there were no distortions, compared to the current exchange rate of N1,544/$.

However, he warned that without significant policy changes and increased dollar liquidity, the naira’s outlook remains fragile.

Impact on Nigerian Economy

The depreciation of the naira has wide-ranging implications for the Nigerian economy:

1. Inflationary pressures: A weakening naira exacerbates inflation, reducing purchasing power and affecting living standards.

2. Reduced investor confidence: Currency instability deters foreign investment and hampers economic growth.

3. Rising import costs: A weaker naira makes imports more expensive, potentially fueling inflation.

4. Economic instability: A weakening currency can undermine economic stability and potentially trigger an economic downturn.

What happens next with Naira?

To stem the naira’s decline, experts recommend:

1. Monetary policy reform
2. Increased dollar liquidity
3. Liberalization of current transactions
4. Fiscal discipline

As Nigeria grapples with its currency challenges, the government must implement swift and decisive reforms to stabilize the naira and revitalize the economy.

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