In its latest Country Report on Nigeria, the Economist Intelligence Unit (EIU), has raised concerns about the Central Bank of Nigeria’s (CBN), ability to support the national currency, the naira, due to a liquidity shortage.
Published on Friday, the report highlights the challenges faced by the CBN following the unification of segments of the country’s foreign exchange market on June 14, 2023. This move led to a significant depreciation of the naira, which weakened by 36.56% to 632.77/$ on the day of the market unification.
Since then, the naira has continued to struggle against the dollar, experiencing a second devaluation in February, estimated at about 45%, in an effort to align with the parallel market rate. This has positioned the naira as the second-worst-performing currency globally, following the Lebanese pound.
According to the EIU report, the CBN may need to resort to foreign borrowing to stabilise the naira and meet its foreign exchange obligations. The report suggests that this may only be achievable towards the end of 2024.
Recent borrowing attempts include a $3.3 billion loan secured from the African Export-Import Bank in mid-January, backed by oil revenue. Additionally, the Federal Government’s return of fuel subsidies has incentivized borrowing from the CBN.
However, the EIU warns that deficit monetization and high inflation could further undermine the currency. The report notes the CBN’s policy rate increase in February but highlights President Tinubu’s aversion to high interest rates.
In light of these challenges, the EIU revised its 2024 economic growth forecast for Nigeria from 2.2% to 2.5%, anticipating higher crude output and production from the Dangote refinery.
The report underscores the urgency for Nigeria to address its economic challenges, highlighting the potential for mass protests and strikes if market reforms are implemented too hastily.
Additionally, concerns raised by the African Development Bank regarding rising fuel and commodity prices and the risk of internal conflicts are noted.
Meanwhile, CBN Governor Dr. Olayemi Cardoso has announced that the central bank will not extend further facilities to the Federal Government until outstanding obligations are settled, in compliance with the CBN Act (2007).
As Nigeria navigates these economic challenges, the global community watches closely, underscoring the importance of strategic measures to stabilize the currency and foster economic growth.
