THE naira has been rated among the world’s worst performing currencies in 2023.
The local currency plunged 55 per cent this year to N1,043 per dollar as of Thursday, making it the world’s worst performer after the Lebanese pound and the Argentine peso among 151 currencies tracked by Bloomberg.
According to a Bloomberg report, the currency is poised for its worst year since the return to democracy in 1999, with analysts predicting further depreciation in 2024.
The naira reached an all-time low on Thursday as it depreciated to N1,043.09 per United States dollar in the official market, just a few days to the New Year.
Bloomberg said the depreciation started after the Central Bank of Nigeria (CBN) allowed the currency to trade more freely in June, and President Bola Tinubu scrapped costly petrol subsidies.
It added that Nigeria’s foreign reserves are at the lowest in six years with most of them encumbered by overdue short-term overseas obligations.
It quoted a forecast by Vetiva Capital Management Ltd suggesting that Naira may slip further unless Tinubu’s administration lures international investors or ramps up oil output.
“It’s clear that further devaluation — alongside tighter monetary policy — is needed to reduce imbalances in the FX market.
“A significant rise in external reserves, material increase in foreign exchange inflows, and reduction in money supply,” will be positive for the Naira, Vetiva Capital said in a note to clients.
The foreign exchange reserves dipped to a six-year low of $32.87 billion at the end of December, recent data from the CBN showed last week.
This is coming as the bank sold dollars to try to prop up the ailing Naira currency.
Analysts said that backlog of unsettled forwards, undelivered promises of dollar inflows and a two-decade peak in inflation have translated into a tumultuous year for the naira, ranking of its value to become the third worst-performing global currency in 2023, Reuters quoted Kyle Chapman, FX markets analyst at London-based Ballinger & Co Limited.
This made the CBN to run down its foreign exchange reserves, which peaked at $47.63 billion in June 2018, to defend the naira. The dollar reserve of Africa’s biggest economy in December dwindled to a level last seen in September 2017, when it stood at $32.16 billion.
“The naira’s downwards momentum is likely to continue through much of 2024, and its ultimate trajectory will depend on whether the CBN’s rhetoric transforms into concrete policy moves that drive up the flow of U.S dollars into Nigeria and shore up trust in the official market,” Chapman said.
The naira last week touched a low of N1,248 on the official market and sold for N845 on Friday.
It was quoted at N1,210 on the parallel market while on the forwards market, the naira sold N1,037.50 to the dollar for one-month settlement .
CBN governor, Olayemi Cardoso, had said he would allow market forces to determine exchange rates while setting clear, transparent and harmonised rules governing market operations.
“If the CBN’s promised measures materialise and (President Bola) Tinubu’s government enacts structural changes to increase oil production or to drive foreign investment, there is plenty of opportunity for the naira to lift from its record lows,” Chapman said.
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