Nigeria: Central Bank weakens currency again in July
July 17, 2020
The Central Bank of Nigeria (CBN) weakened the official exchange rate for the second time on 7 July amid pressure from international lenders and investors to unify its multiple exchange rates. The move came on the heels of a hefty 15% adjustment in March when the currency faced tremendous pressure from the collapse in global oil prices, with the CBN bringing the rate down to NGN 361 per USD. On 7 July, the official exchange rate was weakened by 5.3% to NGN 381 per USD; meanwhile, the NAFEX exchange rate—used by both investors and exporters and which acts as a spot-rate for the naira—traded at NGN 388 per USD that same day, where it has hovered for the past couple of months on the back of the oil price recovery.
The devaluation comes after Governor Godwin Emefiele’s remarks in June that the CBN was moving towards unifying the official rate closer to NAFEX in view of improving transparency of its FX-management regime. The decision also comes against the backdrop of President Muhammadu Buhari’s pledge of converging the rates in view of securing financing from multilateral lenders to cover the large balance of payment needs and budget shortfalls arising from the plunge in oil prices. The country already secured a USD 3.4 billion loan from the IMF in April and the latest adjustment by the CNB bodes well for unlocking additional financing from the World Bank, with whom authorities are currently in talks with.
All in all, the move is a positive step towards merging the country’s multiple exchange rates. Analysts have long maintained the view that this regime creates confusion and hinders investment. Nevertheless, the pace at which these changes have been made has been rather slow, signaling that the path for a single and flexible exchange rate remains long.
Author: Javier Colato, Economist