Emmanuel OchayiNigeria’s currency, the Naira, experienced a significant depreciation during the third quarter of 2023, with the unofficial market rate plummeting to N1000/$1. This alarming drop, coupled with a decline in external reserves, is raising concerns about the nation’s economic stability.
Official figures show the Naira’s official exchange rate closing at N755.27/$1, down from N769.25/$1 in the second quarter.
However, it’s the unofficial “black” market rate that paints a grimmer picture, with a staggering 23% loss, dropping from N770/$1 to N1000/$1 over the same period.
This alarming disparity between official and unofficial rates reflects the persistent shortage of foreign exchange in the country and divergent policies between the Central Bank of Nigeria (CBN) and market forces.
The CBN attributes the currency’s depreciation to a substantial forex backlog estimated at $6 billion to $10 billion.
During the recent Senate confirmation of the central bank governor, Yemi Cardoso and four other deputies, he acknowledged the need to address these unsettled obligations, emphasizing the importance of clearing the backlog for economic progress.
He stated: “It would be naive for us to think we will be able to make progress if we don’t handle that side of the foreign exchange.”
The Naira’s weakening has taken a toll on Nigeria’s economy, leading to increased import costs, surging inflation, diminished purchasing power, and discouraging investment. The inflation rate soared to 25.8% in September, according to the National Bureau of Statistics (NBS).
Looking ahead, analysts predict further pressure on the naira in the fourth quarter of 2023. The CBN may need to devalue the official rate once again to align it with market realities and protect dwindling external reserves, which fell from $34.1 billion to $33.2 billion over the quarter.
However, there is a glimmer of hope if the CBN can meet its obligations to clear the forex backlogs, possibly through obtaining new loans from friendly countries. Without this, some experts fear the parallel market rate could breach N1100/$1 by December, driven by increased demand for dollars ahead of the festive season and a new wave of Nigerians seeking to travel out in the new year.
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