Nigeria’s currency is the cheapest that it has been in decades, thanks to painful but necessary economic reforms to put the nation on a long-term path to recovery.
“The naira’s real exchange rate is at its most competitive in at least 20 years,” said Chief Economist Indermit Gill. “This is a great opportunity for the private sector,” he told the Nigerian Economic Summit Group on Monday in the capital, Abuja.
Currency and fuel subsidy reforms by President Bola Tinubu last year have pulled Africa’s largest oil producer back from the brink of fiscal collapse, Gill said, after years of misrule left Nigeria with the largest number of people living in extreme poverty in the world.
The naira’s value has fallen by more than 70% to around 1,553 per dollar on Monday from 465 per dollar before the reforms, the cost of gasoline has more than quintupled and the central bank has stopped printing money to finance government spending.
“This is only the beginning. Nigeria will need to stay the course for at least another 10 to 15 years to transform its economy,” he informed the audience, which muttered audibly at this warning. “It is very difficult to do these things, but the rewards are massive.”
Foreign exchange rules to prop up the naira ended by Tinubu after taking office in May 2023, plus fuel subsidies that he has also rolled back were costing Nigeria 10 trillion naira a year, worth around $15 billion at the time.
“You can do a lot with $15 billion,” Gill said.
While welcomed by international investors, the devaluation of the naira and removal of fuel subsidies has fanned inflation and caused a cost-of-living crisis for ordinary Nigerians, sparking protests in recent months that led to a deadly crackdown by security forces.
“The government must do everything in its power to protect the most vulnerable citizens against hardships,” Gill said, recommending that it ramp up short-term payments to poor households and roll out a social safety net financed with the money saved on fuel subsidies.
The central bank, which has raised interest rates aggressively to curb inflation and quell naira volatility, must also stay focused on price pressures, while building up foreign reserves and resisting what he called the “lure of short-term capital inflows that might push up the naira value too quickly and crimp non-oil growth.”
“If you stay the course you will surely reap the rewards,” Gill said. “Failure sets back the continent and ruins the future of another generation.
Source: bloomberg