In a critical new report, Chatham House, a leading UK-based think tank, has urged the Nigerian government to avoid efforts aimed at strengthening the naira. The report, titled “Nigeria’s Economy Needs the Naira to Stay Competitive,” emphasizes that the current depreciation of the naira is essential for bolstering Nigeria’s position in the global economy.
Since President Bola Tinubu’s economic reforms, the naira has experienced a dramatic decline, from around N460 to nearly N1,500 per dollar following the 2023 elections. This drastic depreciation marks one of the largest currency adjustments seen globally in years and has positioned Nigeria’s economy for unprecedented competitiveness.
Chatham House highlights that in any developing economy, the dollar’s price is pivotal. The report warns that mishandling dollar valuation could lead to increased imports, widening the trade deficit and potentially resulting in financial instability as global investors withdraw from Nigerian markets.
While Nigeria has faced rising inflation as part of these economic reforms, Chatham House cautions that reinforcing a stronger naira could reverse the competitive advantages gained from its depreciation. Instead, the report reveals that the current naira devaluation has enhanced Nigeria’s balance of payments—now in surplus—and has contributed to a significant increase in the Central Bank of Nigeria’s (CBN) foreign exchange reserves, exceeding $40 billion.
Furthermore, a weaker naira has strengthened Nigeria’s budget significantly. The World Bank has noted that previously misaligned exchange rates had adversely affected government revenues from sectors that heavily rely on dollar transactions, particularly oil, gas, customs, and excise duties.
Chatham House also pointed out a notable improvement in Nigeria’s fiscal deficit, which has decreased from 6.4% of GDP in early 2023 to 4.4% by early 2024. Despite these positive trends, controlling inflation remains a pressing issue, particularly for Nigeria’s urban poor who bear the brunt of rising prices.
Rather than relying on a stronger naira to combat inflation, Chatham House advocates for alternative strategies. These include enhancing the monetary transmission mechanism and increasing public revenue, ensuring Nigeria’s economic growth does not sacrifice the competitive advantages gained from a depreciated currency.
As Nigeria navigates this complex economic landscape, the insights from Chatham House reflect a broader concern about how to balance growth, control inflation, and foster sustainable economic prosperity. With significant challenges and opportunities ahead, Nigeria finds itself at a critical juncture, where decisions made now will have lasting implications for its economic trajectory and international standing.
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