The Economist Intelligence Unit (EIU) has stated in its latest Country Report on Nigeria that the Central Bank of Nigeria lacks the liquidity to support the naira currently. This assessment comes after the CBN unified segments of the country's foreign exchange market in June 2023, leading to a significant depreciation of the local currency. The naira has continued to struggle against the dollar, exacerbated by a second devaluation in February.
According to the EIU, the CBN may need to resort to foreign borrowing to support the naira and meet its foreign exchange obligations. The report highlights that Nigeria recently took out loans from institutions like the African Export-Import Bank and the African Development Bank, with plans for further borrowing from the World Bank. The EIU also suggests that tapping into the international capital market could be an option, albeit a costly one, once US interest rates begin to fall.
The EIU's report indicates that the Nigerian government's return to fuel subsidy has incentivized borrowing from the CBN. The report questions the coherence of market reforms under President Bola Tinubu, especially regarding the elimination of petrol subsidies and the liberalization of the exchange rate. The EIU predicts continued volatility in the naira for most of the year, which could impact businesses holding foreign currency.
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