The Nigerian Naira has crashed to its lowest level in history against the US Dollar at the official foreign exchange market. On Thursday, November 9, 2023, the Naira closed trading at N996.75 to the dollar, representing a massive depreciation of 160.14 or 19.14% compared to the exchange rate of 836.61 recorded the previous day.
This is the latest development in a series of setbacks for the Nigerian economy, which has been struggling in recent years due to a number of factors, including the COVID-19 pandemic, the war in Ukraine, and domestic security challenges.
Causes of the Naira’s Decline
There are a number of factors that have contributed to the Naira’s decline against the US Dollar. One key factor is the shortage of foreign exchange in Nigeria. Nigeria is a net importer of goods and services, meaning that it spends more on imports than it earns from exports. This creates a demand for foreign exchange that the country cannot always meet.
Another factor that has contributed to the Naira’s decline is the CBN’s decision to raise foreign exchange restrictions on 43 items in June 2023. This move was intended to boost economic activity and make it easier for businesses to import goods. However, it has also led to increased demand for foreign exchange, which has further put pressure on the Naira.
In addition, the Naira has been affected by the global economic slowdown. The US Federal Reserve has been raising interest rates in an effort to combat inflation. This has made the US Dollar more attractive to investors, which has led to a decline in the value of other currencies, including the Naira.
Impact of the Naira’s Decline
The Naira’s decline against the US Dollar has a number of negative consequences for the Nigerian economy. One key impact is that it makes imports more expensive. This is because businesses have to spend more Naira to buy the same amount of foreign exchange that they need to import goods. This can lead to higher prices for consumers and businesses.
Another impact of the Naira’s decline is that it makes it more difficult for Nigerian businesses to compete in the global market. Nigerian exporters have to sell their goods at lower prices in order to be competitive with foreign exporters. This can lead to lower profits and job losses in the export sector.
The Naira’s decline also has a negative impact on the Nigerian government’s ability to service its debt. The Nigerian government has a significant amount of debt that is denominated in US Dollars. As the Naira declines, the government has to spend more Naira to service this debt. This can lead to a fiscal deficit and a decline in the government’s ability to provide essential services.
What the Government is Doing
The Nigerian government and the CBN are aware of the challenges posed by the Naira’s decline and are taking steps to address them. In June 2023, the CBN announced a number of measures to boost foreign exchange liquidity, including the introduction of a new exchange rate regime and the increase of the weekly forex auction sales to $100 million.
The government has also been working to diversify the economy and reduce its reliance on oil exports. In addition, the government has been implementing reforms to improve the business environment and attract foreign investment.
However, it is important to note that these measures will take time to have a positive impact on the Naira. In the meantime, the Nigerian economy is likely to continue to face challenges due to the Naira’s decline.
What Individuals Can Do
There are a number of things that individuals can do to protect themselves from the negative impact of the Naira’s decline. One important step is to reduce their reliance on imported goods. Individuals can also try to save in foreign exchange in order to protect their savings from inflation.
In addition, individuals should be careful about investing in assets that are denominated in Naira. It is important to do your research and understand the risks involved before investing in any asset.
The Naira’s decline against the US Dollar is a serious challenge for the Nigerian economy. The government and the CBN are taking steps to address this challenge, but it is likely to take time before these measures have a positive impact. In the meantime, individuals can take steps to protect themselves from the negative impact of the Naira’s decline.