KEY POINTS
- According to World Bank report, Naira depreciated by 43%, year to date as of August 2024.
- The currency pressures have been worsened by surging dollar demand and the slow disbursements of foreign currency by the Central Bank of Nigeria.
- Government reforms are failing to break inflationary pressures and the IMF forecast economic growth of just 3.3% in 2024.
Meanwhile, the World Bank’s latest Africa’s Pulse report listed the naira among the worst, on the continent, when it comes to currency depreciation in 2024. It has depreciated about 43 percent year to date, one of the weakest in the region with the Ethiopian birr and South Sudanese pound.
What causes naira to decline?
The naira’s depreciation is due to increased demand for U.S. dollars in the parallel market, shortage of the dollar inflows into the country, and lingering foreign exchange disbursements by the CBN, the report stated.
Despite such efforts including the liberalization of the official exchange rate which started in June 2023, these pressures have continued.
Broader economic impact
The depreciation is also adding to Nigeria’s broader economic issues, further sensitizing the economy to inflationary pressures. This further strains already limited pockets of Nigerian consumers, since imported goods are now more expensive.
The World Bank report also notes that while recent reforms worked, they were not sufficient for stabilising the naira or from reigning in inflation.
Comparison of currency across Africa
The naira’s plight stands in contrast to many other African currencies that found themselves in trouble last year, like the Kenyan shilling or the South African rand, which have already begun to rebound in 2024.
That fact reflects on the team’s work because, for example, by the end of August, the Kenyan shilling was one of the region’s best performers, rising by 21% year to date. Foreign exchange shortages nevertheless continue to be a problem for many African economies.
The Nigerian economic outlook
However, the World Bank holds a more optimistic outlook of Nigeria’s economic growth, forecasting a 3.3% and 3.6% GDP growth forecast from 2024 to 2026 as from it says these fiscal and macroeconomic reforms will start to bear fruits.
According to The Punch, Funneling taxes into the Treasury isn’t enough, however; Nor is reducing inflation plausible anytime soon as 2024 price hikes drive up the cost of living even further as inflationary pressures rise.
The foreign exchange challenges facing Nigeria are those needed to be addressed as the country pursues its reform efforts, the World Bank advises, to stabilise the naira and bring down inflation.
