The foreign exchange crisis in Nigeria is making it difficult for investors to help country as many have to been forced to ditch the official market for the black market due to shortage supply and mismanagement by the county’s apex bank.
According to World Bank, in its bi-annual Nigerian Development Update, a report published twice yearly, the way the exchange rate was managed limited access to FX and thus adversely affected investor confidence and investment appetite. This has widened the disparity between the official I&E Foreign Exchange Window (IEFX) and the parallel market in recent weeks due to a combination of speculation, demand and fear of future devaluation of the currency.
The Washington-based lender also noted that surging inflation is undermining the economic recovery of the nation as it projects an economic growth of 1.8% this year, compared with a previous estimate of 1.2%. It warned that the economy will continue to grow slower than the pace of population expansion of about 2.6% a year if deep reforms are nit implemented.
“Policy decisions related to exchange rate, trade and monetary and fiscal factors are driving inflation, especially during 2021, more so than exogenous factors related to conflict and weather shocks,” said Marco Hernandez, the World Bank’s chief economist for the country.
World Bank advised that the central bank should aim for greater flexibility by reestablishing a dollar interbank market, effectively allowing banks to trade currency on their own behalf to increase liquidity and move toward a single rate.
It added that the lack of a credible monetary anchor will keep inflation elevated as the central bank is too busy trying to achieve too many objectives, such as controlling price increases, promoting economic growth and keeping a stable exchange rate.
