The naira suffered its weakest performance in recent weeks at the weekend after Nigeria’s foreign exchange (forex) reserves recorded its first depletion in six weeks. The naira closed weaker at the official and parallel markets, the first all-round negative performance in recent weeks.
Tracking data obtained by The Nation at the weekend showed that Nigeria’s forex reserves declined by $63.1 million to $33.52 million, halting a five-week consecutive increase in national gross forex reserves.
The naira followed the decline, depreciating by 0.1 per cent to N411.67 per dollar at the official Investors and Exporters ( I & E) Window and by one per cent to N520 per dollar at parallel market.
Total turnover at the I & E Window dropped by 29.2 per cent to $482.28 million, with trades within the band of N400.00 and N 420.95 per dollar. At the forwards market, the one-month and six-month contracts were flat at N412.33 per dollar and N421.66 per dollar respectively. The three-month contract depreciated by 0.1 per cent to N415.27 per dollar while the on-year forwards appreciated by 0.1 per cent to N421.65 per dollar.
Bismarck Rewane’s Financial Derivatives Company (FDC) at the weekend said speculative activities at the parallel market will keep the exchange rate volatile in the next few weeks.
“However, upon receipt of the IMF’s SDR credit of $3.35 billion expected on August 23, we expect gross external reserves to increase to about $34 billion. This will provide more support for the CBN to support the currency and lead to a further convergence of the exchange rate around the I & E window,” FDC stated.
Analysts at Cordros Securities stated that they also expected improved liquidity in the I & E Window over the medium term, given expectation of increased oil inflows in line with the rise in crude oil prices and inflows from foreign currency borrowings of $6.18 billion and IMF SDR of $3.40 billion.
“Accordingly, we expect the naira to remain relatively range-bound-N410 per dollar-N415.00 per dollar at the I & E Window,” Cordros Securities stated.
Meanwhile, FDC at the weekend noted that with less than 570 days to the 2023 elections, an assessment of the Nigerian government’s scorecard, with respect to achieving its broad macroeconomic goals, revealed under performance amid half-hearted and belated efforts at economic reform.
According to FDC, while reforms have not been helped by the COVID-induced disruption and delays in implementation, fears are rife that the government may be switching gears firmly into campaign mode as the elections draw ever closer.
The latest FDC monthly update outlined that Nigeria has not achieved its broad macroeconomic goals of sustainable and inclusive growth, price stability, reduction of unemployment and external sector stability and competitiveness.
In the area of sustainable and inclusive growth, the report noted that the goal was to achieve real GDP growth that outperforms potential GDP growth rate of 8.3 per cent in 2021 and outpaces the population growth rate of 3.2 per cent.
“The reality is that real GDP growth has consistently underperformed potential GDP, and as such, the recessionary gap is widening. According to the United Nations, Nigeria is now the poverty capital of the world-2019: 40.1 per cent with the fourth lowest life expectancy globally-2019: 53.8 years,” FDC stated
On price stability which aimed at keeping prices below target of six to nine per cent, the CBN employed inflation targeting as its monetary policy management framework for the attainment of price stability – part of achieving its objective of maintaining macroeconomic stability. While headline inflation of 17.38 per cent is on the downward trend, it is 8.38 per cent higher than the upper limit of the CBN’s target. The CBN deems inflation above 12 per cent as growth retarding: high inflation could impede progress in business sentiment while eroding investor confidence.
“The goal is to keep unemployment below the natural rate of unemployment-frictional and structural unemployment and not cyclical, while also ensuring a high rate of youth participation and employment. The reality is in stark contrast with the country’s aspirations as Nigeria is in its worst unemployment crisis-33.3 per cent, according to the World Bank.
“This is the highest level of unemployment in Africa. In 2020 alone, seven million Nigerians fell below the poverty line. Youth unemployment is over 50 per cent and rising – fuelling social unrest. The decline in living standards caused by the recession in 2020 and the underlying problem of poverty are compounding the problem of insecurity across the country,” FDC stated in relation to the third broad economic goal of reduction of unemployment.
In the area of external sector stability and competitiveness, the report noted that the objective was to achieve a balance of payments surplus – positive current-account, capital account and trade balances.
“As it stands, Nigeria’s share of global exports fell sharply in 2020 be-fore rising again on the back of reductions in both oil price and production. According to data from the Economist Intelligence Unit (EIU), export prices fell by 22.6 per cent while import prices fell slightly by 0.6 per cent. The current-account and trade balances were in negative territory:-3.9 per cent and -16.4 respectively,” FDC stated.
– The Nation