Nigerian Naira Currency News: Can Sinking NGN Be Salvaged?
Invezz.com – The Nigerian naira is still in trouble as the country’s economy worsens and foreign direct investment (FDI) slows sharply. The pair was trading at 462 on Wednesday, where it has been for the past few weeks. However, the real exchange rate, which people use, is much worse, which means that the spread has widened to 277.
Nigeria faces substantial challenges
Nigeria, like other emerging markets, faces substantial challenges that have contributed to the decline in its currencies. Naira, the country’s currency, has plummeted more than 30% in recent years. This means that Nigerian savers have seen their investments lose substantial value.
Inflation is one of the biggest challenges facing Nigeria. Data released this week revealed that headline inflation jumped to 22% in March this year. On a monthly basis, inflation increased by 0.13%. Analysts warn that real inflation is much higher than the official figures.
Nigeria’s inflation will continue to rise as the incoming president has pledged to end subsidies in the energy sector. These subsidies have resulted in Nigerians paying some of the lowest fuel prices in recent years.
At the same time, with global financial conditions tightening, foreign direct investment (FDI) has recently dried up. In addition, foreign investors now earn returns in excess of 4% simply by buying short-term government bonds.
Data shows that FDI into Nigeria plummeted to $5.3 billion in 2022 from $6.7 billion previously. This happened due to the depreciation of the naira, weak government economic policies, pre-election jitters and insecurity.
Can the Nigerian Naira be saved?
It is worth noting that the Nigerian naira is not the only emerging market currency at risk. The South African rand has plunged more than 35% from its 2021 high. Similarly, the Kenyan shilling, Zimbabwean dollar and Pakistani rupee have been trending lower.
The collapse of the Nigerian naira is unique in that it occurred when oil prices were rising. To some extent, Nigeria has not benefited from rising oil prices because it is a net importer. At the same time, the country’s trade deficit has widened in recent months.
Saving the Nigerian naira will require tough decisions, including turning the economy from its overreliance on oil and gas and promoting local businesses. Furthermore, it requires the government to tighten its belt in an attempt to reduce the overall budget deficit. The deficit widened to 3.3% of GDP in 2022 and is expected to reach 4.7% this year. Some of the actions needed to achieve this, including mass layoffs and ending subsidies, are not popular.
Therefore, I suspect that the official and parallel exchange rates will continue to worsen to 500 and 800, respectively.
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