Economic expert and GMD/CEO of Confederated Facilitators Limited (CFL) Group, Lai Omotola, has stated that the major barrier to economic progress in Nigeria is the country’s exchange rate, which should be stabilized to lower Inflation and other economic issues. According to him, a stronger Naira—ideally around ₦350/$1—would result in cheaper costs, including for fuel, and less currency speculation overall. Omotola noted that the Central Bank’s current strategy is shallow and pushed for the closure of currency management flaws. A high demand for foreign currency and constrained foreign reserves have caused the value of the Naira to fluctuate, which has exacerbated inflation and threatened economic stability.
This issue has gained more traction from policymakers who perceive that long-term growth and economic recovery depend on exchange rate stabilization. Nigeria currently has a multiple exchange rate system, meaning that the central bank’s official rate and the parallel market rate are very different. Businesses and individuals have faced difficulties as a result of the discrepancy, especially those that depend on imports and must procure foreign currency at higher rates. Investor confidence has also been eroded as both domestic and foreign Investors encounter uncertainty while preparing long-term investments or repatriating profits.
A more stable exchange rate would lower consumer prices.
Numerous economic analysts opined that addressing the exchange rate is essential to stabilizing Nigeria’s economy. There is also a general consensus that a more unified system of exchange rates, or at least one that reduces the difference between official and parallel market rates, might have a big effect on inflation and increase economic predictability. Experts contend that a more stable and transparent exchange rate would lower consumer prices, cut company expenses, and improve the Investment climate by fostering more stable financial conditions. To improve currency rate stability, The Central Bank of Nigeria (CBN) has explored a number of options, including increased FX market interventions.
However, this objective is made more difficult by Nigeria’s low foreign reserves, high reliance on imports, and the Volatility of world oil prices, which continue to significantly impact the nation’s foreign exchange revenues. Some experts suggested that a gradual adjustment to an exchange rate that is more driven by the market may help the situation as it would more accurately reflect Supply and Demand dynamics. This strategy also carries risks because a quick change could increase inflation before it stabilizes and further depreciates the naira if not handled carefully. To boost output and lessen Nigeria’s high import needs, analysts warn that any changes to the exchange rate policy must be coupled with more extensive economic reforms.
Government recognizes the value of a stable exchange rate.
Manufacturing and Agriculture are frequently mentioned as industries with significant potential to boost foreign exchange earnings, create jobs, and lessen reliance on imports. Additionally, foreign exchange regulations need to be more predictable and transparent. Senior economist Dr. Akin Olayinka claims that a currency policy that is imprecise or unstable deters investment given that people are reluctant to invest capital into an uncertain situation. He contends that the government can boost market confidence and increase the economy’s appeal to foreign investors by establishing a clear, long-term policy for managing exchange rates.
He argues that doing so would promote capital inflows to sustain Economic Growth and eventually aid in currency stabilization. While the government recognizes the value of a stable exchange rate, cooperation between the public and private sectors will be necessary to accomplish this objective. Dr. Nneka Obi, an economic expert, pointed out that private companies and financial institutions can help support measures that boost foreign reserves, such as encouraging exports and cutting back on needless imports. She contends that by working together, the country can lessen the strain on the naira and preserve stability over time.
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Although it’s a complicated process that needs to be managed carefully, experts acknowledge that a stable naira would boost investor confidence, reduce inflation, and encourage sustainable economic growth. There would be many advantages to a stable naira, including less inflation, more investor confidence, and a lower cost of living, but undoubtedly, these objectives depend on a well-planned and executed strategy that can provide favorable outcomes. Through the integration of Structural Reforms and exchange rate stability initiatives, Nigeria can establish the foundation for a more robust and thriving economy.