Saturday, September 21, 2024 Nigeria's local currency, the naira, has been ranked among the 10 worst-performing currencies in the world, according to a report by Bloomberg.
The report highlights that five of the
worst-performing currencies globally are from Africa, including the Zambian
kwacha, Angolan kwanza, and the naira.
The decline in the performance of African
currencies has been attributed to several factors, including economic
challenges, unstable commodity prices, inflationary pressures, and a lack of
dollar liquidity. The report noted that many African economies, heavily reliant
on oil exports, are particularly vulnerable to drops in oil prices.
Keonethebe Bosigo, portfolio manager at Mazi Asset Management, commented
that while oil prices are a significant factor, the real issue lies in poor
currency management and economic imbalances. He explained that for the naira,
the problem stemmed from not allowing it to adjust, which led to overvaluation
and a subsequent loss of confidence in the currency.
Irmgard Erasmus, an economist at
Oxford Economics, also weighed in on the naira’s struggles, citing ongoing
issues with liquidity and dollar supply. Despite reforms aimed at liberalizing
Nigeria's current account following the election of President Tinubu in 2023,
the currency continues to face significant pressure.
“The naira remains undervalued
relative to its long-term neutral value due to ongoing issues around liquidity
and dollar supply,” said Erasmus. He added that while declining Brent crude
prices have worsened the situation, improvements in dollar liquidity could
potentially aid in the naira's recovery over time.
Erasmus also stated that the naira
should be trading around N1,100 per dollar in the absence of distortions,
compared to its recent close of N1,544/$. However, he warned that without major
policy reforms and better dollar supply, the outlook for the naira remains
uncertain.
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