Despite recent reforms under the Bola Tinubu administration, Nigerian manufacturers and businesses are still facing challenges in accessing foreign exchange at the official market. This has led to a decline in the naira exchange rate to the dollar, reaching an all-time low of N803.90/$1 at the Investors’ and Exporters’ (I&E) window last week. The scarcity of forex is also causing uncertainties for Nigerian students planning to study overseas ahead of the school fees season from September 2023.
The closing rate of N803/$1 represents a significant 7.3% decline from the beginning of the week when it closed at N744/$1. Further investigations reveal that a similar decrease was recorded at the parallel market, with the naira falling to N822/$1. Additionally, Nigeria’s FX reserves have decreased by $2.01 million week-on-week to $34.06 billion.
Economic analysts expect the re-introduction of the “willing buyer, willing seller” model at the I&E window to influence the exchange rate direction. While the Central Bank of Nigeria (CBN) has abolished multiple FX windows to boost foreign investors’ confidence, investors are adopting a cautious approach, awaiting signals on the CBN’s plans to clear the FX backlogs and boost FX supply to support the market in the near term.
According to experts, banks may be fueling the demand for forex due to the increase in the amount of FX that can be spent on dollar cards abroad. However, they acknowledge that Nigeria is facing a money supply problem, contributing to the soaring demand for forex. The unification of the exchange rate was a move made by the new government in response to calls from local and foreign businesses to end the multiple exchange rates. The CBN’s decision to collapse all official FX segments into the I&E window was an attempt to streamline the forex market, but challenges persist as backlogs still exist.