_Naira's Downward Spiral: Nigeria's Currency Among Worst Performers in Africa_

_Naira's Downward Spiral: Nigeria's Currency Among Worst Performers in Africa_

The Nigerian naira has hit an all-time low, ranking among the worst-performing currencies in Sub-Saharan Africa for 2024, according to the World Bank's latest Africa's Pulse publication. By August 2024, the naira had plummeted by 43% year-to-date, joining the Ethiopian birr and the South Sudanese pound as the weakest currencies in the region.

This significant decline is attributed to a surge in demand for U.S. dollars in Nigeria's parallel market, coupled with limited dollar inflows and sluggish foreign exchange allocations from the central bank. Financial institutions, non-financial end-users, and money managers driving the demand for dollars have further strained the naira.

Nigeria's efforts to reform its foreign exchange market, including the liberalization of the official exchange rate in June 2023, have not been enough to stabilize the currency. The country's dwindling foreign reserves and inflationary pressures have intensified the naira's challenges.

The depreciation of the currency has significantly affected domestic prices, especially for imported goods, worsening the situation for Nigerian consumers. The increased cost of living has put a strain on households and businesses, making it difficult for them to afford essential goods and services.

However, a recent uptick saw the naira appreciate by 5.69% against the dollar on October 14, moving from ₦1,641.27/$1 to ₦1,552.92/$1. Despite this brief respite, foreign exchange turnover fell by 44.27% during the same timeframe, indicating ongoing challenges in the forex market.

The World Bank projects Nigeria's economy to grow by 3.3% in 2024, with a slight increase to 3.6% projected for 2025 and 2026 as reforms take effect. Nonetheless, inflation remains a significant concern, particularly following the removal of fuel subsidies in mid-2023, which has led to a tripling of gasoline prices and increased transportation and logistics costs throughout the country.

The Nigerian government faces an uphill battle in addressing the country's economic challenges. The removal of fuel subsidies has led to widespread protests and increased tensions. The government must balance the need for economic reforms with the need to protect vulnerable populations from the impact of inflation and currency fluctuations.

In related economic forecasts, the Economist Intelligence Unit predicts Nigeria's GDP growth will remain below potential, despite some uplift in the medium term. Disinflation is expected to begin from May 2024, but the cost-of-living crisis will remain an acute political danger. Oil prices will remain above $80/b until late 2025, with demand hitting record highs in 2024-25.