Naira tumbles to new low as dollar scarcity persists

The naira plunged to a new record low on Thursday, inching closer to the unofficial parallel market rate as chronic dollar shortages continue to plague the country.

The currency fell as low as N1,399 to the dollar, FMDQ data showed, close the 1,400 per dollar level it was quoted at in street trading.

The naira later recovered slightly to N1,299 per dollar on the official market and closed for the day at N900.96.

Roots of the Shortage

This dramatic slide isn’t new. For years, Nigeria has grappled with a shortage of hard currency, largely driven by:

• Oil Dependence: As Africa’s biggest oil producer, Nigeria relies heavily on oil revenue for its foreign exchange earnings. Low production and global oil price fluctuations have impacted this vital source of income.
• Import-Heavy Economy: Nigeria imports a significant amount of goods, from fuel to food, further draining its already limited dollar reserves.
• FX Management Challenges: The Nigerian central bank’s policies and interventions in the foreign exchange market have faced criticism for inconsistencies and contributing to the shortage.

The naira’s official exchange rate has been drifting towards the parallel market level as the central bank struggles to clear outstanding forex obligations owed in forward deals.

Central bank Governor Olayemi Cardoso said on Wednesday that the bank would work to support the naira which he said was undervalued, and was trying to improve liquidity in the foreign exchange market.

Ripple Effects

The naira’s depreciation has far-reaching consequences for Nigerians. Imported goods become more expensive, leading to rising inflation and eroding purchasing power. Businesses struggle to access dollars for essential imports, potentially hindering economic growth.