The International Monetary Fund (IMF) has reported signs of stabilization for the naira, crediting this improvement to recent interest rate hikes and initiatives by the Central Bank of Nigeria (CBN) aimed at addressing foreign exchange backlogs. This assessment was included in the IMF’s latest Global Financial Stability Report.
According to the IMF, the CBN’s measures to clear overdue foreign exchange obligations have been pivotal in stabilizing the currency.
The report stated, “Policy actions by local authorities have also resulted in positive developments; for example, in Nigeria, rate hikes and the clearing of overdue domestic central bank foreign exchange obligations have helped the naira show more signs of stability.”
However, recent data from the FMDQ Exchange shows a slight decline in the naira’s value, falling from ₦1,653.02 per dollar on Tuesday, October 22, 2024, to ₦1,654.09/$ on Wednesday, October 23, 2024, marking a marginal depreciation of 0.06 percent.
Additionally, foreign exchange turnover saw a significant decrease of 22.41 percent, dropping from $176.15 million on Tuesday to $136.68 million on Wednesday.
The IMF’s evaluation occurs amid ongoing efforts by Nigerian authorities to stabilize the foreign exchange market and enhance liquidity. However, the sharp decline in FX turnover indicates persistent challenges in reconciling demand and supply within the market.
In its latest edition of Africa’s Pulse, the World Bank noted that the naira was among the worst-performing currencies in Sub-Saharan Africa in 2024.
By the end of August 2024, the naira had depreciated by approximately 43 percent year-to-date, making it one of the region’s weakest currencies, alongside the Ethiopian birr and South Sudanese pound.
The depreciation of the naira has been linked to several factors, including surging demand for U.S. dollars in the parallel market, limited dollar inflows, and delays in foreign exchange disbursements by Nigeria’s central bank.
The World Bank report further highlighted that the demand for dollars, driven by financial institutions, non-financial end-users, and money managers, has intensified the pressure on the naira.
It noted, “By August 2024, the Ethiopian birr, Nigerian naira, and South Sudanese pound were among the worst performers in the region. The Nigerian naira continued losing value, with a year-to-date depreciation of about 43 percent as of end-August.
Surges in demand for U.S. dollars in the parallel market, driven by financial institutions, money managers, and non-financial end-users, combined with limited dollar inflows and slow foreign exchange disbursements to currency exchange bureaus by the central bank explain the weakening of the naira.”
This situation has persisted despite some foreign exchange market reforms implemented by the Nigerian government, including the liberalization of the official exchange rate that began in June 2023.
