IMF Signals Hope for Nigeria’s Troubled Naira Amid Ongoing Forex Woes
Nigeria’s naira is showing early signs of stabilisation, thanks to recent interest rate hikes and efforts by the Central Bank of Nigeria (CBN) to clear its mounting foreign exchange obligations, according to a new report from the International Monetary Fund (IMF). However, challenges remain as foreign exchange turnover continues to decline and the naira’s depreciation persists.
In its latest Global Financial Stability Report, the IMF credited the CBN’s interventions with slowing the naira’s downward spiral. “Policy actions by local authorities have resulted in positive developments,” the IMF noted, highlighting that interest rate increases and the clearing of overdue forex debts have played a significant role in this emerging stability.
Despite these efforts, the naira’s value took a slight hit this week. According to data from the FMDQ Exchange, the currency slipped marginally from ₦1,653.02 per dollar on October 22, 2024, to ₦1,654.09/$ on October 23, marking a 0.06 per cent depreciation. This was accompanied by a sharp 22.41 per cent drop in foreign exchange turnover, with daily trading volume shrinking from $176.15 million to $136.68 million.
The IMF’s cautiously optimistic assessment comes at a time when Nigerian authorities are grappling with persistent challenges in stabilising the forex market. While the CBN’s actions have helped, the sharp decline in trading volume underscores ongoing struggles to balance demand and supply in the market.
Meanwhile, the World Bank painted a more grim picture of the naira’s performance. In its latest Africa’s Pulse report, the Bank revealed that Nigeria’s currency was one of the worst-performing in Sub-Saharan Africa in 2024. By the end of August, the naira had depreciated by 43 per cent since the start of the year, placing it among the region’s weakest currencies, alongside the Ethiopian birr and South Sudanese pound.
The World Bank attributed the naira’s slide to surging demand for U.S. dollars in the parallel market, coupled with limited dollar inflows and delays in foreign exchange disbursements by the CBN. These pressures, exacerbated by the actions of financial institutions, money managers, and other market players, have left the naira vulnerable despite several reforms, including the liberalisation of the official exchange rate in June 2023.
For now, Nigeria’s currency remains under strain, but the IMF’s recognition of recent policy successes offers a glimmer of hope. The road to recovery, however, will be long, as the country faces the dual challenge of sustaining its foreign exchange reforms while managing the impact of ongoing demand for hard currency in a highly volatile market.
