The Economist Intelligence Unit (EIU), has predicted that the value of Nigeria’s currency, Naira, will continue to depreciate, gradually falling to an official rate of N470 to $1 by the end of 2023.
In a report titled: “Things to Watch in Nigeria in 2023”, the organisation stressed that the pressure on the local currency may continue to increase, further negatively impacting the current N445 rate.
“A devaluation cannot be ruled out, but as these events pass currency pressures should ease. We now expect the naira to end 2023 at about N470/$1, from N444/$1 currently, with the movement being one of gradual depreciation.
The EIU is the research and analysis division of the Economist Group, providing forecasting and advisory services through research and analysis, such as monthly country reports, economic forecasts, country risk service reports and industry reports.
It added that early 2023 is set to be a testing period for stability of the currency regime, explaining that an announcement by the Central Bank of Nigeria (CBN) in October immediately triggered a naira sell-off, as holders of old banknotes rushed to convert them to hard currency.
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With foreign exchange scarce on the parallel market and bureau de change operators preferring to hold rather than sell, the black-market exchange rate, it said, has been extremely volatile, depreciating to more than N800/$1 in early November, before recovering to N750/$1 in mid-month and sliding back to N780/$1 a week later.
“The currency redesign will continue to be a source of pressure on the naira until January, when existing banknotes lose their status as legal tender, and the election in February could also unleash speculative forces.
“Inflation is expected to remain in double digits and monetary conditions will be tight, with the central bank’s policy rate expected to peak at 17 per cent by end-2022 or early 2023, and to be maintained at this level throughout the year,” it stressed.
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According to the report, extreme poverty continues to drive criminality, with the state getting smaller, making it easy for criminal groups to fill the void.
It predicted that Nigeria’s federal revenue/GDP ratio is expected to remain at less than 5 per cent in 2023.
The report posited that an underpaid, often unmotivated and exhausted military continues to struggle against increasingly well-armed bandits and oil thieves.
“Petrol price regulation is officially scheduled to end in June 2023, and our view is that a decision will be made to scale down the subsidy bill by raising pump prices from July,” it pointed out.
At roughly N195 ($0.45), the ninth cheapest in the world, the EIU said that in neighbouring Benin (to where Nigerian petrol is often smuggled) a litre is two and a half times that price.