Naira faces drop in value over rising trade deficit, says expert

A research analyst with the financial planner, FXTM, Lukman Otunuga, says there is the possibility of the Naira shedding its value in Quarter 3 in response to its perennially strong import culture, which far outpaces its exports.

In the second quarter, Nigeria posted a current account deficit in the sum of $2.9 billion and there are worries among industry experts that the development could recur in Q3, with the implication that government might be compelled to modify the exchange rate lower to suit the sentiments of foreign investors.

Otunuga noted that the Central Bank of Nigeria (CBN) might be similarly strained to offer palliatives to the current inflationary pressures on the economy.

“While a deficit is not necessarily bad, it does suggest that a country’s liabilities exceed its foreign assets. Given how Nigeria imports more than it exports, there is a risk of the nation experiencing another deficit in Q3 – an outcome that could prompt foreign investors to call for Naira devaluation.”

“There will be a strong focus on the interest rate decision on Tuesday (today). Given how inflationary pressures are making an unwelcome return, the CBN may think twice before cutting interest rates from 13.5 per cent. Should the CBN governor adopt a cautious tone and express concerns over the Nigerian economy, investors may re-evaluate the possibility of monetary policy easing during the first half of 2020,” Mr Otunuga noted.

Nigeria’s Capital importation figure for Q3 2019, released earlier this week, put the value of capital importation into the country during the period at $5.368 million, representing a 7.78% plunge from the amount posted at Q2. However, it was an 87.99% increase over the amount posted in the corresponding period of 2018. Generally, the contraction in the size of Nigeria’s capital importation on quarter on quarter basis as detailed above is a timely indication that the nation is increasingly losing its appeal as investment hub among foreign investors.