Nigeria’s local
currency, the naira, is among the 10 worst-performing currencies in the world,
Bloomberg is reporting.
According to a report by
the publication, out of the 10 worst-performing currencies, five are from
Africa, including the Zambian kwacha, the Angolan kwanza and the naira.
The drop in the performance of the African currencies was
linked to economic challenges, unstable commodity prices, inflationary
pressures, and a lack of dollar liquidity.
Also, Bloomberg said the poor performance is due to many
African economies depending on oil exports, so they are vulnerable to declines
in price.
Commenting on the data, Keonethebe Bosigo, portfolio manager
at Mazi Asset Management, said oil prices are not the only issue, even though
it is a major factor.
Bosigo said poor currency management and imbalances are “the
real culprits”.
Speaking on the performance of the naira, the portfolio
manager said oil prices are a factor, “but the real issue is that the naira
wasn’t allowed to adjust, which led to its overvaluation and a subsequent loss
of confidence in the currency”.
On his part, Irmgard Erasmus, an economist at Oxford
Economics, said the naira continues to “face significant pressure despite
reforms aimed at liberalising 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.
“Although Nigeria has made inroads toward current account
liberalisation since the Tinubu victory in 2023, hard-currency supply
challenges persist while tightening regulations on the banking sector and BDC
operators contribute to risk aversion.”
The economist added that declining Brent crude prices have
only exacerbated the problem, but improved dollar liquidity could help the
naira recover over time.
“The government’s
slow pace of reforms, combined with haphazard monetary policies, continues to
keep the currency in undervalued territory,” he added.
‘NAIRA SHOULD BE TRADING AROUND N1,100/$’
Erasmus also said the naira should be trading closer to
N1,100 per dollar in the absence of distortions, compared to Thursday’s close
of N1,544/$.
He, however, said without significant policy changes and
improved dollar liquidity, the outlook for the naira remains fragile.
On June 14, 2023, the Central Bank of Nigeria (CBN)
officially unified the
multiple FX rate systems, collapsing all FX windows into the investors‘ and
exporters’ (I&E) window.
The policy resulted in the depreciation of the local
currency and caused significant levels of volatility in the FX market.
At the close of trading on Friday, data from FMDQ
Securities, a platform that oversees official foreign exchange trading in
Nigeria, showed that the naira traded at N1,541 per dollar.
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