As long as government’s policies failed at rejuvenating Nigeria’s economy and crude oil production remain at an appalling state, Nigeria’s currency, the naira, will continue its free fall.
Analysts and economists, who spoke to News Direct on Thursday, said there is the possibility of the dollar exchanging for as much as N1000 before the end of the year.
They claimed that lack of direct foreign investment into the country, high oil theft, skyrocketing petrol subsidy which remains a drain on the economy as well foreign exchange (FX) speculation by currency traders are also responsible.
The development comes against the backdrop of seemingly unbridled borrowing and rising debt service cost which exceeded the country’s revenues by as much as N310 billion in the first quarter (Q1) of 2022 and still continues to rise.
The naira depreciated to N730/$1 on the parallel market on Thursday after it was N710 to a dollar it closed the previous day.
In the past few days, the naira exchange rate against the dollar has been on the decline on the parallel market.
The inability of Nigeria to take advantage of rising international oil prices due to massive oil theft, among others, have combined to push the naira to a record low of N730/$1 on the parallel market.
Nigeria is currently facing an economic crisis with rising debt servicing costs, fuel subsidy payments, which from all indications could exceed the budgeted N4 trillion this year as well as a massive drawdown on its Excess Crude Account (ECA).
The Federal Government is projecting that petrol subsidy would rise to N6.72 trillion in 2023, if the country decides to continue with the controversial policy.
In January, February and March 2022, data indicated that petrol subsidy payments gulped N210.38 billion, N219.78 billion, and N245.77 billion, respectively, while in April, Nigeria spent N271 billion and N327.07 billion in May 2022 to cater for the shortfall of the importation of petrol.
A further breakdown of the subsidy claims showed that N564.65 billion was carried forward from the previous month as an unrecovered value shortfall and N263.95 billion from May 2022 subsidy outstanding, including N501.30 billion for the current month’s subsidy cost. Overall, the value shortfall for the period stood at N1.32 trillion.
Of the total figure, NNPC deducted N319.18 billion from the federation account, leaving an outstanding balance of N1.01 trillion to be carried forward and recovered from July proceeds due in August.
To compound the current subsidy crisis, Nigeria does not know its exact daily consumption of petrol and is believed to be subsidising neighbouring countries due to the arbitrage created by the subsidy in Nigeria.
Stephen Iloba, a Lagos-based economist, said the naira will continue to suffer depreciation until Nigeria begins to attract foreign investment and manufacturers in the country are able to export.
“There is the fear that the dollar will exchange for N1000 before the end of the year if concerted efforts are not made to ensure we diversify the economy and encourage exportation. If we rely on oil, we will not get out of this situation anytime soon.
We need to encourage exportation in the non-oil sector.” Managing Director, Cowry Assets, Johnson Chukwu, disagreed with insinuation that dollarisation of the political space is responsible for dollar scarcity. He said, “It is not politics that is driving it.
It is demand and supply. We have mismanaged the economy and we are not earning foreign exchange.
If politicians mopped up dollars, they will still give it out to their members which will still get to the market”.
He added that a situation where the country is groaning with poor crude production is an indication that Nigeria is suffering in the midst of plenty.
He said, “It is appalling that at a time like this, we are not producing crude when we should be producing. Every other country producing crude is currently enjoying it.
The question we should ask is how you can be in a group where your members are celebrating and you are crying.
It means something is wrong with you.” Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, gave his opinion on how to stabilise the naira.
He said: “The exchange rate is a mere indicator of the balance of supply and demand forces in the foreign exchange market.
Those who are discussing exchange rate developments without reference to the unfolding realities of demand and supply are chasing the shadows instead of substance.”
Cyril Ampka, an Abuja- based economist, is of the opinion that devaluation is a better sweet pill to swallow for a nation’s currency.
For a net exporting country, devaluation provides better export competitiveness, increases revenues from exports and puts more money into the hands of citizens.
He said, “A very good example of a country that has benefited from this is China, which is the largest trade nation in terms of the sum of its exports and imports.
“For a net importing country like Nigeria, however, devaluation will help increase revenue but in turn, reduce purchasing power.
The nation will thus be fanning the embers of the two evils that it currently faces (rising inflation and low purchasing power for the people) if we devalue.”
He further explained that devaluation won’t solve the exchange rate crisis as the more robust solution would require the nation to become more productive.
“There is, however, light at the end of the tunnel if we get things right by encouraging exports and productivity, engaging in massive backward integration which helps in increasing the ease of doing business, creating a more attractive and sustainable environment for FDI and FPI inflows and finally, creating better sync between fiscal policy and monetary policy,” he said.
