Recent reports have highlighted a troubling trend for the Nigerian naira, which has been listed among the ten worst performing currencies in the world, according to Bloomberg. This ranking reflects broader economic challenges faced not only by Nigeria but also by several other African nations.
In the global economy, currency performance is often a reflection of a country’s economic health. The naira’s poor ranking is part of a concerning pattern, with five of the worst-performing currencies being from Africa, including the Zambian kwacha and Angolan kwanza. Factors contributing to this decline include economic instability, fluctuating commodity prices, rampant inflation, and restricted access to US dollars.
Economic Challenges: Nigeria’s economy has faced significant challenges, including a reliance on oil exports, which makes it particularly vulnerable to fluctuations in oil prices. When oil prices drop, it severely impacts the country’s revenue and, consequently, the value of the naira.
Poor Currency Management: Keonethebe Bosigo, a portfolio manager at Mazi Asset Management, emphasized that the main issue for the naira stems from inadequate currency management. He noted that the failure to allow the naira to adjust to market conditions has resulted in its overvaluation, which has led to a loss of investor confidence.
Liquidity Issues: Irmgard Erasmus, an economist at Oxford Economics, pointed out ongoing problems with liquidity and the supply of US dollars in the Nigerian market. Despite reforms aimed at liberalizing the current account following the election of President Tinubu in 2023, these issues continue to plague the naira.
Inflationary Pressures: High inflation rates further complicate the situation, reducing purchasing power and affecting overall economic stability. As prices rise, consumers and businesses face increased costs, further straining the economy.
Erasmus highlighted that the naira should ideally be trading around N1,100 per dollar under normal conditions. However, it is currently valued at approximately N1,544. This significant disparity indicates not only the naira’s undervaluation but also the extent of the economic distortions impacting its performance.
The outlook for the naira remains uncertain. Experts agree that without major policy reforms and improvements in dollar supply, the currency’s situation is unlikely to improve. This may require strategic changes in economic policy, better management of currency adjustments, and efforts to boost liquidity in the market.
The current ranking of the naira among the world’s worst performing currencies underscores the urgent need for effective currency management and broader economic reforms. By addressing the underlying issues contributing to the naira’s decline, Nigeria can work towards stabilizing its currency and restoring confidence in its economy. This will not only benefit the naira but also support overall economic growth and stability in the country.
