Naira Under Fire: Analysts Warn of Further Devaluation if Forex Crisis Lingers

  Naira Under Fire: Analysts Warn of Further Devaluation if Forex Crisis Lingers.

Financial analysts have been worried about the situation of naira and declaring that the country could experience further devaluation of the naira in case of no efforts are undertaken to curb the situation of the FX crisis in the nation.

“The naira’s value is still under threat as long as FX demand far outweighs supply. Without structural reforms, another devaluation is almost inevitable,”

— Dr. Kalu Aja, Financial Analyst

Source: The Guardian Nigeria.

Naira instability has taken a dimension with the rates trading between 1,400 and 1,600/$1 in parallel market.

The pressure on the foreign reserves is as a result of:

• Theft and low production of crude oil.
• Declined inflows of foreign investments.
• The obligations of debt servicing related to the depletion of external resources.
• Banks and BDCs are complaining that forex is more scarce, and it has aggravated the situation of those in business such as importers and manufacturers.

To Nigerians this translates into 

• Inflation: The commodities and other services in the country are becoming costly as a result of imported commodities.
• Purchasing power: Wages are losing its purchasing value and savings are being whittled away.
• Investor Confidence: In the absence of an apparent FX policy direction, foreign investors are being cautious further aggravating the supply of dollars.

Expert Forecasts

Unless there is an improvement on FX supply the naira may fall to the 1,700 range on 1$ or further, not least bearing in mind that once oil prices become unstable.

In case the reserves continue to decline, the Central Bank might be constrained to realign its strategy in terms of the exchange rate once more.

 Deeper Implications

It is not the overall numbers that should be feared; rather it is economic survival. The firms are closing in response to the expenses of imports. Travelers and students are grounded because of shortage of dollars. A typical Nigerian citizen has become susceptible to poverty trappings.

Naira is fighting with more than the dollar; it is fighting against decades of structural weakness of the Nigerian economy. Unless there will be increased production, decreased imports, and the improvement in confidence in the government policy, this cycle of depreciation can resume terribly.

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