With COVID-19 pandemic continuing to pose significant public health and a major economic challenge to the global economy, the Central Bank of Nigeria (CBN) said the effort to curtail the impact on both fronts resulted in the devaluation of the Naira to about N410 to the dollar.
The CBN governor, Godwin Emefiele, who stated this at an Economic Summit in Lagos on Friday, said with COVID-19 Nigeria, like most commodity exporting countries, faced significant revenue challenges.
With the impact of the pandemic, he said commodity prices such as crude oil, took a plunge by over 65 percent in the first half of 2020, with investors pulling over about $100 billion from emerging market countries, with the corresponding depreciation in the currencies of several of these countries.
He said interventions in combined stimulus measures in the health sector, to curtail further spread of the virus, and economy, aimed at stimulating greater economic recovery, cost about $18billion, or 4.5 percent of the country’s gross domestic product (GDP).
These intervention measures, the CBN governor said, resulted in a significant shock to the country’s economy, particularly in the second quarter of 2020, resulting in economy contracting by 6.1 percent, down from a positive growth of 1.87 percent in the first quarter.
He said the over 70 percent decline in crude oil prices in the first half of the year resulted in a significant reduction in the country’s foreign exchange earnings.
Although crude oil prices have recovered significantly from its low level of about $19 per barrel in April 2020, the Organization of Petroleum Exporting Countries (OPEC) reference basket of crude oil averaged $66.26 per barrel on Friday.
The CBN governor said the drop in crude oil earnings and associated reduction in foreign portfolio inflows significantly affected the supply of foreign exchange into Nigeria over the period.
To adjust for the decrease in supply of foreign exchange, he said the Naira depreciated at the official window from N305 to the dollar to N360 to the dollar and currently hovering around N410 to the dollar, an indication that the apex bank has again quietly devalued the national currency.
Although the CBN is yet to officially adjust the N379 to the dollar exchange rate published on its website, the Naira continues to weaken against the dollar, with its value plunged to an all-time low level of N429.75 to the dollar on the investors and exporter (I&E) window in the Nigerian Autonomous Foreign Exchange Fixing (NAFEX) on Thursday.
At the parallel market, the Naira slightly depreciated from 473 to 478 in the past week, reflecting the decline on the NAFEX.
“With the decline in our foreign exchange earnings and subsequent adjustments in the value of the Naira against the US dollar, the CBN has continued to implement a demand management framework, designed to support improved production of items that can be produced in Nigeria, and further conservation of our external reserves,” the CBN governor said.
These measures, he said, have helped the fiscal authorities to prevent a significant decline in the country’s external reserves currently at over $35 billion, sufficient to cover more than seven months of import of goods and services.