Nigeria may devalue currency Naira in Q1, 2020 as oil price slump downs external reserves

1
1449

Nigeria may be forced to devalue its currency Naira as recent monetary policy moves by its central bank suggests so.

According to sources close to the apex bank and members of the Manufacturers’ Association of Nigeria and Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture are being sensitised ahead of the devaluation date which may have been scheduled for first quarter of next year (Q1, 2020).

In a desperate bid to prevent naira from devaluation, the CBN has introduced several policy measures which include FOREX ban on food items and some fiscal measures to improve revenue.

Also, the CBN Governor, Godwin Emefiele had recently mentioned that if external reserves drop to between $30 billion and $25 billion, and oil price falls between $50 – $45, the apex bank could consider moving on to float the exchange rate and devalue the naira.

Manage Naira
It’s unclear how the central bank will try to unify the naira, said Mali. But he expects that monetary officials will continue to manage instead of float it.
“The jury’s out on whether it will be 305 or 360,” he said. “For the real economy, the rate is already 360. That’s what many exporters, importers and manufacturers have to use. It’s the de facto exchange rate.”

According to reports from Moody’s Investors, Nigeria will probably maintain its system of multiple exchange rates, which the International Monetary Fund has long-urged it to scrap, until at least early 2020, according to Moody’s Investors Service.

Merging the naira’s various rates any sooner might force the government to weaken the currency and raise fuel prices, which would accelerate inflation, the ratings company said.
Nigerian monetary and fiscal authorities are likely to wait until investments in oil refineries and fertilizer plants, including by billionaire Aliko Dangote, reduce Nigeria’s imports of petroleum products.

While that may take another two years, it would put the government in a better position to stabilize fuel prices, which it caps at a level based on the central bank’s official naira rate, Moody’s said.

If the government merges the exchange rates, “they won’t be able to provide discounted dollars to oil marketers.” Aurelien Mali, a sovereign analyst with Moody’s, said in an interview in Lagos on Wednesday. “It means that either they have to increase pump prices or give subsidies to marketers, which would impact public finances. Neither option is credible at the moment.”

Currency flows

Nigeria’s external sector performance has continued to be on the low as oil prices plummeted while the country’s non-oil export slowed. This implies that the use of the country’s reserves to either defend the naira or service the debt comes at a great cost.

CBN report for August 2019, the decline in international prices of crude oil affected the inflow of foreign exchange into the country. Meanwhile, this has not stopped outflow for an import-dependent economy like Nigeria.

In August, for instance, foreign exchange inflow through the CBN was put at $4.8 billion while the outflow was $6.14 billion. This puts the net outflow at $1.24 billion.

SHARE
Previous articleNigeria’s External Reserves Plunge to 21-Month Low
Next articleNigeria considers competition action on telecom players over spectrum democratization
Godwin Okafor is a Financial Journalist, Internet Social Entrepreneur and Founder of Naija247news Media Limited. He has over 16 years experience in financial journalism. His experience cuts across traditional and digital media. He started his journalism career at Business Day, Nigeria and founded Naija247news Media in 2010. Godwin holds a Bachelors degree in Industrial Relations and Personnel Management from the Lagos State University, Ojo, Lagos. He is an alumni of Lagos Business School and a Fellow of the University of Pennsylvania (Wharton Seminar for Business Journalists). Over the years, he has won a number of journalism awards. Godwin is the chairman of Emmerich Resources Limited, the publisher of Naija247news.

1 COMMENT

Leave a Reply

This site uses Akismet to reduce spam. Learn how your comment data is processed.