Humbled by crashing oil prices and the coronavirus pandemic, Nigeria appears to be heeding the International Monetary Fund’s advice by weakening its currency just months after taking out its first loan from the institution.
Africa’s biggest crude producer quietly devalued its official exchange rate last week, a nod to IMF suggestions that foreign investors would appreciate the unification of a currency that has traded at multiple rates for five years. In the event, the handling of the 5.5% devaluation to 381 naira per dollar still served to sow confusion. The central bank hasn’t announced the change and is yet to adjust the rate on its website.
It was instead published on the internet page of the FMDQ OTC Securities Exchange, which oversees foreign-exchange trading and has the central bank as a shareholder.
President Muhammadu Buhari has insisted that a stable naira is the linchpin of his economic policy, but realities dictate that he and central bank Governor Godwin Emefiele likely had no choice but to comply with the IMF’s guidance. The country has been reeling all year from a dramatic slump in the price of oil, the source of almost all of its foreign exchange.
That also led to Nigeria’s decision to take the $3.4 billion IMF loan, even after a dire experience with World Bank austerity programs in the 1980s.
Both moves are the price of an 80% collapse in oil revenue and the impact of an economic downturn caused by the Covid-19 pandemic. But they also indicate an acceptance that help from multilaterals is needed and the currency rate must reflect the state of the country’s finances. A World Bank loan is expected to follow soon.