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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