President Bola Tinubu who once boasted of transforming Lagos State during his tenure as governor has been undercut by the stark reality of Nigeria’s naira plummeting to claim the unenviable title of the world’s worst currency.
A recent Bloomberg report reveals that the naira has seen a downturn in its previous gains, making it the poorest performing currency globally over the past month. This report, released on Friday, underscores the growing pressure on the Central Bank of Nigeria (CBN) to persist in hiking interest rates.
The naira has fallen to 1,466.31 against the dollar, its lowest point since March 20. This depreciation is linked to the local shortage of US dollars, with a mere $84 million available on Thursday, half of the supply from the previous day.
Yemi Cardoso, the CBN governor, had earlier praised the naira as the top-performing currency worldwide as of April 2024. However, the naira encountered difficulties in March, dropping to as low as N1,600/$1 on the official market and N1800/$1 on the parallel market.
Cardoso credited this accomplishment to a series of foreign exchange market reforms and positive feedback from prominent international investment institutions. Razia Khan, the Chief Economist for Africa and the Middle East at Standard Chartered, told Bloomberg that she expects $1.3 billion in naira futures to mature by the end of this month, which could potentially dampen market sentiment.
The report further indicates that the naira’s poor performance is likely to increase pressure on the CBN to implement another rate hike after its policy meeting on May 21. In February and March, the Central Bank raised rates by a total of 600 basis points, helping the naira recover from its March 8 low of 1,627 naira to 1,072 in mid-April as investors pursued higher-yielding local assets.
The naira’s weakness was also noticeable in the unofficial market, where it fell 0.9% to 1,468 naira per dollar on Friday. Abubakar Muhammed, CEO of Forward Marketing Bureau de Change Ltd., which tracks data in Lagos, attributed this decline to increased demand from individuals and small businesses.
Two other African countries, Zambia and Ghana, are among the four worst-performing currencies over the past month. The Zambian kwacha reached a record low of 27.3969 per dollar on Friday, while Ghana’s cedi weakened to 13.99 against the dollar, its lowest level since 2022. Both countries are currently in the process of debt restructuring.
Ayodele Salami, Chief Investment Officer for UK-based Emerging Markets Investment Management Ltd., told Bloomberg that the delays in reaching a debt restructuring agreement with private creditors are likely affecting capital flows for Ghana and Zambia. He added that these countries are unlikely to attract new capital inflows until the ongoing debt restructuring negotiations are concluded.
Salami also noted that the naira, along with other African currencies, is under pressure due to increased domestic demand for dollars, especially for importing raw materials and commodities, including oil.
