The international business research firm, Economist Intelligence Unit, has said that the Central Bank of Nigeria does not have the liquidity to support the naira as of now.
It stated this in its latest Country Report on Nigeria, which was published on Friday.
The CBN unified segments of the country’s foreign exchange market on June 14, 2023, which resulted in a significant depreciation of the local currency.
The naira weakened by 36.56% to 632.77/$ on the day the CBN unified the forex market from 463.38/$ at the official market.
The naira has struggled against the dollar since then and it worsened in February following a second devaluation, which is about 45 per cent according to analysts in an attempt to close the gap with the parallel market rate.
That makes it the second-worst-performing currency in the world, after the Lebanese pound.
In the report, EIU said that the CBN may need to resort to foreign borrowing to support the naira and fulfil its foreign exchange obligations.
It stated, “Our view is that it will take foreign borrowing to rebuild the CBN’s buffers, fully clear a backlog of unmet foreign exchange orders and restore confidence. This is probably only achievable towards the end of 2024. In mid-January Nigeria took out a $3.3bn loan from the African Export-Import Bank, secured on oil revenue in a so-called crude oil prepayment facility. This follows a $1bn loan from the African Development Bank in November, and another $1.5bn is being sought from the World Bank.
“Falling risk premiums on government international bonds make tapping the international capital market another viable (albeit costly) option once US interest rates start to fall from the second half of 2024.
“For most of this year, the naira will be highly volatile, leading to regulatory erraticism that can affect businesses, especially those holding foreign currency.
“The CBN lacks the liquidity to support the naira itself; out of $33bn in foreign reserves, a large share (estimated at nearly $20bn), is committed to various derivative deals. The CBN recently imposed restrictions on oil companies repatriating export earnings abroad, and there is a risk of wider convertibility limits being imposed until the currency stabilises.”
