Nigeria’s currency, Naira ends year 2020 weaker at -31% as FX reserves fall
By Oludare Mayowa
The year 2020 is not a good year for the local currency, as the naira suffered serious bashing from all fronts due to the declined in foreign exchange earnings by the government, which took its toll on the forex reserves.
The country’s foreign reserves closed the year weaker by 8.39 percent year-on-year to $35.35 billion against $38.59 billion it closed on December 31, 2019.
The reserves declined despite of the inflows of $3.4 billion from the International Monetary Fund (IMF) facilities to support Nigeria in the face of weak revenue and additional inflows from the African Development Bank (AfDB) and other multilateral institutions.
The government secured the IMF facilities middle of the year to help the country combat the impact of the outbreak of coronavirus in the country.
In the course of the year, the Central Bank of Nigeria (CBN) devalued the naira in order to keep pace with surging demand for hard currencies, especially from offshore portfolio investors trying to repatriate their funds out of the country in the face of weak economic outlook.
The naira started the year at N359 to the dollar on the parallel market and at N306.96 to the dollar on the CBN window.
On Thursday, the last day of the year 2020, the naira traded at 379 to the dollar on the official window, down to N470 to the dollar on the parallel market and traded at N402 per dollar on the Investors & Exporters’ (I&E) forex window.
At the official window, the naira lost around 23.46 percent to the greenback while it lost 30.91 percent at the parallel market.
The I&E FX window was established in February 2017 by the CBN to allow buyers and sellers of dollar to negotiate exchange rate base on market mechanism.
The dollar is traded freely on the I&E window in response to the dictate of market unlike the manage float obtained at the official market.
Consequently, prices of goods and services went up astonomically with inflation trending at 14.89 percent at the end of November as the naira become weaker.
In a survey conducted by the CBN recently, the market is anticipating further depreciation of the local currency due to the persistent dollar shortage and the inability of the CBN to meet demand at the domestic market.
Analysts believed that Nigeria has to look inward to boost forex reserves by increase non-oil exports against the dominant of oil sector.
While the government efforts to boost agriculture in a bid to conserve forex reserves, the government must do more to boost investment in the solid mineral sector and other untap sector of the economy to increase its forex earnings.