Is Tinubu’s Economic Policies Paying Off? Here’s Why Naira Is Gaining Against The Dollar
In June 2023, the administration of President Bola Tinubu, Nigeria’s president, introduced an economic policy that saw the naira battered. The country’s currency, the naira, lost nearly 70 percent of its value after the new administration floated the currency in a bid to unify the different exchange rates and attract investors.
Although the World Bank and the International Monetary Fund (IMF) lauded the economic policies introduced by President Tinubu, including the removal of subsidies and the floating of the country’s currency, Nigeria, a country of over 200 million people, now grapples with the drastic economic fallout that has followed.
The country’s inflation has soared to a 28-year high, eroding the purchasing power of Nigerians. Data from the National Bureau of Statistics (NBS) between June 2023 and February 2024 showed that food inflation has increased from 25.09 percent to 37.92 percent.
To curb the soaring inflation, the Central Bank of Nigeria (CBN), the country’s apex bank, has introduced several measures.
In late February 2024, Yemi Cardoso, CBN Governor, increased the Monetary Policy Rate (MPR) from 18.75 percent to 22.75 percent. A month after, the apex bank increased it again to 24.75 percent, during a second Monetary Policy Committee meeting in Abuja on Tuesday, March 26, 2024.
“From our perspective, the key thing is to be fully focused on our core mandate to fight inflation and stabilise the economy. The purchasing power of the average person should be restored to the level it should be,” he said.
The naira, which depreciated to N1,600 to the dollar in early March, has since appreciated, and now trades at N1300.
“The committee noted with satisfaction the level of stability achieved in the foreign exchange market in the last few weeks. This, in the view of members, reflects the impact of the bank’s recent policy actions and reforms, as well as increased transparency in the market,” Cardoso added.
But the clearance of the country’s backlog of FX has also contributed to the gains the naira has witnessed in recent weeks.
On March 20, 2024, the apex court announced it had successfully cleared all verified backlogs of foreign exchange it inherited from past administrations. “The Central Bank of Nigeria has announced that all valid foreign exchange backlogs have now been settled, fulfilling a key pledge of the CBN Governor, Olayemi Cardoso, to process an inherited backlog of $7bn in claims,” the bank’s Acting Director of Corporate Communications, Sidi Ali, said.
She added, “Clearance of the foreign exchange transactions backlog is part of the overall strategy detailed in last month’s Monetary Policy Committee meeting to stabilize the exchange rate and thereby curb imported inflation, spurring confidence in the banking system and the economy.”
Aside from the gains the naira has witnessed, there has been an increase in money sent home by Nigerians living abroad, including increased interest on Foreign investor demand for Nigerian assets.
In February alone, Nigerian assets purchased by foreign portfolio investors exceeded $1 billion, bringing the total receipts, as of March 8, to $2.3 billion. This is compared to $3.9 billion for the whole of 2023.
But some believe that the recent intervention will not have a lasting effect if the country’s export capabilities are not increased.
Ken Opalo, an associate professor in the School of Foreign Service at Georgetown University, who majors in the political economy of development, said that Nigeria must lower barriers to export-oriented manufacturing to save the naira.
“So even as officials work on instituting floating exchange rates and taming inflation through higher interest rates, they must also lower barriers to export-oriented manufacturing. Failure to do so will continue to expose their currencies to volatility in tandem with global commodity price cycles,” he wrote on Bloomberg.
