Experts explain why the naira is not N1,000/$1 or better despite stronger reserves, increased oil earnings
Nigeria’s stronger oil earnings and rising foreign exchange reserves have improved the country’s external position, but the naira has remained above N1,300 to the dollar, raising questions about why higher dollar inflows have not translated into a significantly stronger exchange rate. The post Experts explain why the naira is not N1,000/$1 or better despite stronger reserves, increased oil…
Despite Nigeria's improved oil earnings and rising foreign exchange reserves, the naira has remained above N1,300 to the dollar, leading to questions about why higher dollar inflows haven't translated into a stronger exchange rate. Nigerians' desire for a stronger naira stems from a belief that it often results in lower costs for goods and services.
Social media users wonder why the exchange rate hasn't strengthened to as high as N1,000/$1. The gap has become more noticeable as crude oil production has improved and NNPC's monthly revenue has increased. As of September 1, Nigeria's foreign exchange reserves stood at about $53.9 billion, and the naira continued to gradually strengthen.
The naira's strength remains below N1,000/$1 despite the country's stronger external position. Financial and economic experts explain the disconnect by examining factors such as dollar demand, foreign exchange liquidity, imports, capital flows, monetary policy, and Nigeria's external payments structure. They argue that while oil earnings and reserves have improved, the surge in dollar inflows hasn't been enough to eliminate persistent demand for foreign exchange or trigger a sharp naira appreciation.
Economists emphasize that the difference between foreign exchange earnings and the actual dollars available in the wider FX market plays a crucial role. Dr Yusha'u Aliyu, a researcher at the Abuja-based Institute for Professional Economists and Policy Management, notes that even with higher crude oil sales, additional earnings may not offset the country's demand for imported goods and services.
Dr Yusuf AbdulMarouf of the University of Abuja states that stronger reserves alone cannot guarantee a stronger naira, as it ultimately depends on broader economic fundamentals. Controlling money supply growth, fiscal deficits, and surplus naira liquidity is essential for sustaining currency stability. While higher oil receipts can bolster Nigeria's external buffers, not all additional earnings automatically enter the spot FX market.
Some proceeds strengthen official reserves, while others may be used to meet government obligations and external payments. The demand side also plays a role, as Nigeria's reliance on imported goods and services generates substantial need for foreign exchange. An increase in oil-related FX inflows may be absorbed by existing demand rather than directly translating into a stronger exchange rate.
NNPC's operational data shows that crude oil and condensate production has fluctuated, averaging 1.64 million barrels per day in January, falling to 1.51 million barrels per day in February, and rising to 1.68 million barrels per day in July. Despite the naira's recent stabilization, a sustained narrowing of the gap between the official and parallel markets would indicate more significant FX pressure easing.
However, the naira's performance may be seen as a stabilization rather than a significant appreciation.
Written by urgent.news from Nairametrics's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
