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Naira depreciation adds N9tn to foreign debt burden

The exchange rate between the naira and the dollar decreased from N196.92 in June 2015 to N414.72 in June 2022, hence increasing Nigeria’s external debt.Information Guide Nigeria

The naira lost 52.52 percent of its value versus the U.S. dollar over the seven-year period examined.

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The Monthly Average Exchange Rates of the Naira (Naira Per Unit of Foreign Currency) for 2015 document acquired from the Central Bank of Nigeria’s website indicates that one dollar was valued at N196.92 on the Interbank Foreign Exchange Market.

According to data given by the CBN, the exchange rate for a one dollar on June 30, 2022 was N414.72.

The PUNCH has revealed that Nigeria’s overall external debt will increase from $10.32 billion on 30 June 2015 to $40.06 billion on 30 June 2022.

According to the Debt Management Office’s data on the stock of external debt, this indicated a growth of 288.18% in seven years.

A breakdown reveals that in 2015, states had $3.27bn in external debt, while the federal government had $7.05bn.

By 2022, states’ external debt reached $4.56 billion, while the Federal Government’s external debt was $35.5 billion.

Included in the debts are loans from multilateral sources such as the World Bank, the African Development Bank, and the International Monetary Fund, as well as bilateral sources such as China, France, Japan, Germany, and India.

They also consist of obligations originating from commercial sources, such as Eurobonds and Diaspora bonds.

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Nigeria’s external debt in naira would have been N7.89tn if the average CBN exchange rate for June 2015 had been used to calculate the country’s current $40.06bn foreign debt.

At the exchange rate of N414.72 on June 30 of current year, the total external debt in naira terms was N16.61tn, a difference of N8.72tn.

If Nigeria decides to repay its $40.06bn external debt in 2022, it will incur costs of N8.72tn in naira terms. Nigeria would have spent N8.72tn less if this same debt had been incurred in 2015, given the currency rate of N196.92/$ at the time.

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The Managing Director/Chief Executive Officer of Cowry Asset Management Limited, Mr. Johnson Chukwu, responded by stating that a high external debt will put a massive debt payment burden on the country.

He said, “This will impose a huge debt service on the economy, particularly at a period when we have low revenue from oil sales. If the revenue from oil sales does not improve, then the government will be struggling to meet that debt service obligation to foreign lenders.”

Nonetheless, he emphasized that Nigeria could cover its foreign debt at the current level, but a continuing increase in debt without a corresponding increase in foreign currency receipts might place the nation in a precarious position.NYSC portal

Policy failure

In an effort to manage the value of the naira, the Central Bank of Nigeria (CBN) implemented a number of policies, such as preventing 41 items from accessing foreign currency on the official market, offering N5 for every $1 of funds remitted to Nigeria via Internal Money Transfer Organisations, and prohibiting the supply of foreign currency to Bureau de Change, among others.

However, these policies have been unable to ensure the stability of the naira.

The World Bank has stated that it disagrees with how the Central Bank of Nigeria (CBN) attempts to stabilize the price of the naira, and that the local currency should be allowed to respond to real factors rather than being stifled by the CBN.

According to the report, the country’s currency rate policy discouraged investment and elevated inflation concerns.

According to the Global Finance Report, the Central Bank of Nigeria (CBN) has failed to restrain growing inflation and prevent the naira from falling against the US dollar.

Since 1973, the long-term pace of the naira’s depreciation corresponds to an annual loss of 10.6% of its value, according to a recent report by the International Monetary Fund.

According to the IMF, this rate was 1.5 times greater than the long-term rates of other emerging markets and developing countries (7.2%) and sub-Saharan Africa (7%) during the same time period.

The IMF said, “Its exchange rate underwent more persistent depreciation. Nigeria’s long-term rate of currency depreciation (on average 10.6 per cent annually since 1973) was 1.5 times higher than both EMDE (7.2 per cent) and SSA (seven per cent). Given limited availability of long-term data, it is difficult to estimate the exact reasons.”

The Bank of America recently predicted that Nigeria’s local currency unit will continue to depreciate next year since its present exchange rate against the dollar is much above its fair value.

According to a report by Bloomberg, “Three indicators, the widely-used black-market rate, the central bank’s real effective exchange rate, and our own currency fair value analysis show the naira is 20 per cent overvalued.

“We see scope for it to weaken by an equivalent amount over the next six-nine months, taking it to as high as 520 per USD.”

During a workshop on tax expenditure organized by the ECOWAS Commission in Abuja, financial experts recommended Nigeria and other West African nations to rely less on foreign aid to finance regional development programs.

According to them, the region’s long-term prosperity may be negatively impacted by an excessive reliance on foreign help and loans.

Gbenga Falana, Special Advisor to the Director (Custom Union and Taxation in ECOWAS), while highlighting that the debt profile of the majority of countries in the subregion was rising, emphasized the need for West African countries to look inward and finance local projects through effective domestic resource mobilization.JAMB Result

Demand and supply variables

The majority of analysts who spoke with The PUNCH regarded the current situation as a devaluation of the naira, as opposed to a depreciation.

Check JAMB Result

Check and Confirm: How much is Dollar to Naira

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Emediong Silver

Emediong Ekpe is a graduate of English. A professional Sports journalist/analyst, and a spoken word artist. He is passionate about decimating information and putting smiles on people's faces via news writing. Whatapp: 08088735884

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