In a notable economic development, the Nigerian currency, the naira, experienced a substantial depreciation in the third quarter of 2023, causing concerns about economic stability. Official data reveals that the official exchange rate dropped from N769.25/$1 at the end of Q2 to N755.27/$1 at the end of Q3.
However, the situation is more alarming in the parallel or “black” market, where the rate plummeted from N770/$1 to N1000/$1 during the same period, representing a significant 23% loss. Simultaneously, Nigeria’s external reserves slipped from $34.1 billion at the end of Q2 to $33.2 billion, raising questions about the country’s economic health.
The widening gap between official and unofficial rates highlights the persistent scarcity of foreign exchange, coupled with divergent policies between the Central Bank of Nigeria (CBN) and market forces. The central bank attributes the currency depreciation to a forex backlog estimated at $6 billion to $10 billion.
During the Senate confirmation of the central bank governor, Yemi Cardoso acknowledged the unsettled obligations and expressed the need to address them urgently. He emphasized the priority of verifying the authenticity and extent of the unsettled obligation to find a solution.
The weakened naira has negative repercussions for the Nigerian economy, leading to increased import costs, rising inflation (25.8% in September), diminished purchasing power, and a discouraging investment climate. Analysts anticipate further pressure on the currency in Q4 2023, suggesting that the CBN might need to devalue the official rate to align with market realities.
Nairametrics analysts propose that further devaluation could be avoided if the apex bank successfully meets its obligations to clear forex backlogs. However, achieving this may necessitate the government securing new loans from friendly countries. Without such measures, experts foresee the parallel market rate potentially exceeding N1100/$1 by December, driven by increased demand for dollars ahead of the festive season and amid a wave of Nigerians seeking opportunities abroad in the new year.
