Naira begins new week on shaky ground as forex scarcity persists

The Naira has fallen to low levels during the week, exchanging for N428.16/US$ at the investors and exporters window as traders adjusted prices to reflect the rate Central Bank of Nigeria sold the currency amidst the ongoing dollar scarcity.

Nigerian currency last week dropped to its biggest low against the US dollar in the last seven months at the official market, and it could get worse in the coming months.

The last time Naira exchanged at N430 or above was Thursday, 30th December 2021 at the official market.

Within the past two weeks, it has been trading between the range of N420 and N425 and above the benchmark before getting worse last Tuesday.

The CBN has stopped its bi-weekly sale of FX to Foreign Portfolio Investors (FPIs) for the second week.

This, many believe, is to clear the outstanding backlog of contractual obligations to supply FX to FPIs through the banks that have not been met. Based on CBN data, foreign reserves are down 2.9 per cent compared to the position as of December 31, 2021.

Despite the high oil price, occasioned by the Russia-Ukraine war, Nigeria has failed to benefit from it due to limited production and the maintenance of a subsidy regime, which is estimated to cost the country at least N4trn this year.

High oil prices imply an increased cost of refined products and Nigeria continues to spend a huge part of its FX earnings on the importation of Petroleum Motor Spirit (PMS) and other refined products due to the complete absence of local refining capacity.

The country has also failed to increase its non-oil exports despite a few projects introduced by the CBN, such as the RT200 FX programme.

Apart from the fiscal downside of the falling naira, the foreign reserves have continued a downward slope, a trend formed towards the end of last year after it failed to sustain a momentary recovery witnessed in October.

The gross figure, which has remained a consistent gradual depletion in the past five months, dropped to $39.090 billion at end of June, 2022 as against $38.540 billion in May of 2022

A financial expert, David Adonri, said it was obvious the country could not sustain the momentary recovery as there was a FX hole waiting to swallow the earnings.

Earlier in the year, Bismarck Rewane, the chief executive officer of Financial Derivative Company Limited, projected that the reserves would nosedive to about $32 billion as the monetary authority would require between $8 billion and $10 billion to defend the naira.

As the government inadvertently continues to inflate away part of their future financial obligation, including naira-denominated debts, there are concerns that the country could be entering an ‘original sin’ regime, a concept in international finance where a country is restricted to obtaining only foreign-denominated loans.

UNI Agric Markurdi
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