The Economic Intelligence Unit has stated that the Central Bank of Nigeria cannot halt the rapid depreciation of the local currency. The continued volatility of the naira is expected to result in erratic regulation, primarily affecting businesses that hold foreign exchange.
Economic Intelligence Unit: Nigerian Central Bank Lacks Capacity to Defend Local Currency
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Nigeria Presses Ahead With Reforms
The Economic Intelligence Unit (EIU) has stated that the Central Bank of Nigeria (CBN) can neither support nor prevent the depreciation of the local currency, the naira. The research firm expects the naira to remain volatile, leading to “regulatory erraticism” which mainly affects businesses that hold foreign exchange.
In its assessment of Nigeria’s prospects for 2024, the EIU revealed that of the estimated $33 billion in foreign reserves, a large portion – approximately $20 billion – “is committed to various derivative deals.” This leaves the CBN with only $13 billion to defend the naira.
As reported by Bitcoin.com News, the Nigerian currency has depreciated rapidly since the CBN decided to abandon the fixed exchange rate regime. From trading at just under NGN500 per dollar in June 2023, the naira currently trades at just over NGN1,600 per USD1.
In addition to allowing the naira to float against the U.S. dollar, the Nigerian government also eliminated the decades-old petrol subsidy. While these policy changes are reportedly causing widespread suffering, the government of Nigerian President Bola Ahmed Tinubu remains hopeful that they will attract foreign direct investment.
Return of Fuel Subsidy
Commenting on what are seen as two of Nigeria’s flagship policies, the EIU suggested that the government, feeling the pressure, has quietly reinstated the subsidy.
“As Nigeria imports virtually all its fuel, naira devaluations, the latest being a 45% drop in February 2024, should be reflected in the pump price. However, owing to the threat of industrial action, there has been little movement since June, despite the naira having weakened from N461/$1 in May 2023 to N1,600/$1 in late February 2024. This indicates the return of (large) subsidy,” the EIU said.
Turning to the country’s crude oil production prospects, the EIU said it anticipates that foreign oil companies, which have operated in Nigeria for years, will sell onshore assets. Despite this, Nigeria’s crude oil production is projected to rise from 1.23 million barrels per day (mbpd) seen in 2023 to 1.48 mbpd.
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