Macroeconomic Report & Economic Updates

Nigeria Economic Update (Issue 33)

Data from the Central Bank of Nigeria (CBN) shows that as of 17th August 2022, the official exchange rate of Naira to the US dollar was N420.83 for a dollar suggesting a N5.15 depreciation compared to the N415.68 reported at the end of the previous month (July).2 This fall in value of the domestic currency can be attributed to the shortage of foreign currencies in the country, arising from the demand for foreign currency (most especially the US dollar) which is higher than the supply. The preference for foreign-made products over locally produced products and the low production capacity of domestic firms contribute in part to the high demand for foreign currency. The high demand for foreign currency is also due to people’s involvement in speculative purchases by saving dollars to fund education or relocation expenses. While the RT200 FX programme of the CBN is contributing to an increase in the supply of foreign currency, the demand for foreign currency exceeds the supply and, in turn, contributes to the continuous depreciation of the domestic currency both in the official and parallel exchange markets. Thus, there is a need for the government to support domestic firm production capacity to reduce importation. Also, exporting firms need to be provided with financial and technical assistance to increase exportation and expand the sources of foreign currency. There is a higher likelihood that firms that benefited from government support would use official channels in remitting their export proceeds. The supply of foreign currency should increase with effective execution and monitoring of these interventions, resulting in a more stable domestic currency, Naira.

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