The volatility of the Naira against the US dollar continues to send shockwaves of uncertainty through Nigeria’s economy, affecting investors’ confidence.
Last week, there was a brief respite as the country’s currency strengthened against the dollar, trading at N1,100/$1 in the parallel market compared to N1300/$1 the previous week.
The Naira has continued to fluctuate since the Central Bank of Nigeria (CBN) floated the currency in the forex market on June 14, causing concerns among industry stakeholders.
An economist, Sanya Ogunsakin in an interview with The Hope, said that it seems impossible for the Naira to stabilize for an extended period.
“The strength of the Naira is determined purely by crude oil sales. Unless we witness substantial crude oil exports, the currency will remain unstable.”
Ogunsakin’s stance comes as Nigeria recorded N5.14 trillion from crude oil sales in the first three months of 2023, up from N4.9 trillion in the previous quarter, according to the National Bureau of Statistics.
Also speaking, an economist, Prof Segun Ajibola, stated that the ongoing trend in the forex market is symptomatic of a currency struggling to find its fair value in the marketplace.
According to him, for the Naira to regain sustainable strength, the CBN and the federal government must consistently plan to address the supply rigidities of foreign exchange.
“All that is ongoing regarding the Naira exchange rate to US$ is symptomatic of a currency struggling to find its fair value in the marketplace. Even though it started bouncing back from a rate of over N1300 to US$ at some point, there is nothing on the ground to celebrate in the Nigerian forex market yet.
“For the Naira to regain sustainable strength, sustainable efforts must be implemented to address supply rigidities. Otherwise, the unstable global oil market would continue to dictate the happenings in Nigeria’s forex market. And at best, swings in the exchange rate would remain large.
“Non-oil foreign exchange earnings must be doggedly driven to sustain an improved supply of dollars to the market amidst untamed demand for dollars for imports. Anything short of this would only create uncharted swings in the foreign exchange market, the type that has been witnessed in the market for weeks now.
“Dollar supply driven by borrowings, drawdowns from reserves, etc, can provide only temporary assistance. And there lies the call for the need to think outside the box in prescribing effective strategies for managing the country’s foreign exchange market”, he stated.
On his part, a financial expert, Dotun Oyedokun, said, sustaining the Naira surge at the forex is a complex challenge that requires a comprehensive solution.
He said: “There are several key action points that the government can take to sustain the Naira’s gains against the Dollar. Here are a few suggestions:
“Implement sound monetary policies: The government should focus on maintaining a stable and predictable monetary policy framework.
“Enhance foreign exchange reserves: Building and maintaining an adequate level of foreign exchange reserves is crucial to supporting the value of the Naira.
“The government should diversify the country’s export base by supporting non-oil sectors, such as agriculture, manufacturing, and services. This would improve the trade balance and reduce the pressure on the Naira.
“Control Inflation, strengthen local industries: Encouraging local production and reducing reliance on imports can help to reduce demand for foreign currency.
“The government should strive for transparency and accountability in all financial transactions, including foreign exchange dealings.
“Strengthen investor confidence: Engaging with both local and foreign investors to address their concerns and create a conducive business environment is crucial.
“These suggestions provide a starting point but should be accompanied by continuous monitoring, evaluation, and adjustments based on the evolving economic landscape.”