Freely Floating Naira
According to analysts at Bank of America, the Nigerian currency, the naira, is currently undervalued and is expected to end the year trading at around NGN680 per US dollar. The naira’s value has been fluctuating since the Central Bank of Nigeria allowed it to freely float, dropping from NGN470 per dollar to NGN634 per dollar. As of July 1, 2023, one US dollar was buying NGN768 on the parallel market. However, the analysts believe that once rates stabilize and more dollars enter the formal market, the naira will strengthen and appreciate.
Nigeria’s High Debt Burden
The analysts also discussed the reasons behind their prediction that the naira will start 2024 trading at around 680 per dollar. They mentioned that a transition period is needed to align rates and increase USD liquidity in the formal market. Additionally, they noted that higher oil revenues and a liberalized import regime could lead to consistent current account surpluses for Nigeria. The analysts also urged Nigerian President Bola Ahmed Tinubu to address oil theft, as this could increase earnings from hydrocarbons and ease the country’s high debt service burden.
Key Points:
- The naira is currently undervalued and predicted to end the year trading at around NGN680 per US dollar.
- The naira’s value dropped after being allowed to freely float, reaching NGN634 per dollar.
- As of July 1, 2023, one US dollar was buying NGN768 on the parallel market.
- Rates and USD liquidity need to stabilize for the naira to strengthen and appreciate.
- Higher oil revenues and a liberalized import regime could result in consistent current account surpluses for Nigeria.
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Hot Take
The fluctuating value of the naira and Nigeria’s high debt burden highlight the challenges faced by the country’s economy. While there are hopes for increased oil revenues and a liberalized import regime, addressing issues like oil theft and stabilizing exchange rates will be crucial for Nigeria’s economic stability and growth.
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