Business
Currency crisis looms as fiscal buffers dwindle
LAGOS – The continued dwindling of the fiscal buffers- foreign reserves, excess crude account, (ECA) against the backdrop of rising and stable oil prices at the international market is responsible for the strengthening expectation that the nation’s currency, the naira, will dramatically lose value, Business Day investigations have shown.
Also, the current gap of over N13 between the official and parallel market rate which is creating arbitrage opportunity for forex dealers and lose fiscal stance of the federal government among others, is increasing dealers appetite for hedging through the growing desire to switch from Naira to foreign currency denominated deposits. The implication, they argue, is that naira will witness more depreciation.
Razia Khan, analyst with the standard chartered bank, London said, “It is correct that fiscal policy plays a key role in shaping expectations. Monetary policy has done pretty much what it can to restore FX stability. But expectations regarding the sustainability of a stable FX rate are heavily influenced by fiscal policy.
By running down its external and fiscal buffers, the ECA, Nigeria proves itself to be especially susceptible to oil price volatility. In the event of an oil price (or oil output) shock, the perception is that Nigeria will not be able to defend its FX rate. Markets are forward looking, hence the pressure on the currency now. Monetary policy will continue to try to restore stability – but it can only do so much.”
Analysts and monetary policy committee members are of the opinion that this portends danger for the economy as the Central Bank of Nigeria is getting closer to the limit of its monetary policy, stressing that the projected 6-9 percentage inflation rate can only be achieved with stable currency.
A currency crisis is a sudden devaluation of a currency which often ends in a speculative attack in the foreign exchange market. A currency crisis may result from chronic balance-of-payments deficits or from market speculation about the ability of a government to back its currency.
Although most of the analysts who spoke with BusinessDay did not see devaluation as the viable option in view of the import dependent nature of our economy, they wonder why Nigeria with a $30bn current account surplus and with oil prices at $100 per barrel is not seeing an accretion in its foreign reserves.
Besides, they say that considering the rate at which ECA is being depleted, we may wake up next year to discover that nothing is left in the account.
Another concern is the fact that no one seems to be in charge or accountable for management of oil income and questioned the relevance of the economic management team.
“That is why you have all the noise of accusation and denial with regards to what has accrued to the NNPC that is not remitted to the nation’s coffers,” says one close currency watcher
“Somehow, somebody will have to make sense of the oil production and revenue numbers. We are all going to pay a huge price for negligence as CBN can not continue to defend the naira as its balance sheet has very little wiggle room, he told BusinessDay.
Bismark Rewane in recent LBS breakfast meeting for February said that weaker naira will impair earnings of banks and also increases risk of default on dollar-denominated loans.”
Doyin Salami, in his contributions at the last MPC meeting said “From the perspective of economics theory, a persistent surplus on our current account, resulting from high oil price, should see the Naira strengthen. However, the failure to build reserves has resulted in strengthening expectation of that the Naira will lose value. This expectation has been manifested in a continuing switch from Naira to foreign currency denominated deposits –a trend I had previously described as “retail hedging.”
Unless the Fiscal side shows significant improvement imminently, the options for monetary policy may become glaringly inconsistent with the objectives and policy direction for the economy in Nigeria. For monetary policy, the challenge of managing the internal and external value of the Naira is a core element of its mandate. Achieving inflation rate of 6 ‐9 per cent in 2014 requires a stable currency.”
Salami further observed that the model articulated, in various documents, for the growth and development of the larger economy in Nigeria is predicated on Import substitution and for CBN to achieve price stability, “import substitution requires a stable, even strong currency.”
He said that given the data and information laid before the committee members “the immediate and emerging build up of banking system liquidity, it is clear that there is a need to respond to the pressure on the currency and forestall the build-up of further pressure. However, it is increasingly clear that we are approaching the limits for using the cost of credit as a management tool without inflicting damage on the growth and development aspirations of the economy.”
Sarah Alade, deputy governor and member of the MPC said, “Already, available data suggest that Gross Foreign Direct Investment (FDI) and portfolio inflows decreased significantly in the last quarter of 2013. Given that monetary policy is approaching its limit, there is need to allow for more flexibility in the exchange rate”
Suleiman Barau, another member of MPC said that the current crisis was “aggravated by activities of politicians who may have been forced to recourse to the use of foreign currencies to avoid charges associated with Naira cash withdrawals. The aggravated demand for foreign exchange (for transfers/Letter of Credit valid) that we have seen in 2013 is largely in the area of invisibles which has increased by 23.8% from 24% ($13.3b) to 48.2% ($26.1b) during corresponding period in 2012.”
Kingsley Moghalu, deputy governor and also a member of the committee said, “The role of fiscal factors in the current difficulties, marked by a severe decline in the Excess Crude Account over the past year, thus leaving the country dangerously vulnerable to external shocks as a result of the lack of fiscal savings. There is no indication that this situation will change in the near to medium term.”
– BUSINESS DAY
Nigeria recorded the largest increase in the number of people experiencing multidimensional poverty among five countries that registered increases over their latest measurement periods, according to the United Nations Development Programme (UNDP).
The finding was contained in the 2026 Global Multidimensional Poverty Index report, released on Monday by the UNDP and the Oxford Poverty and Human Development Initiative (OPHI).
According to the report, Nigeria’s multidimensional poverty rate rose from 33 per cent in 2021 to 38.7 per cent in 2024, representing an increase of 5.7 percentage points.
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The number of Nigerians living in multidimensional poverty increased from 72.2 million in 2021 to 90.1 million in 2024, leaving an additional 17.9 million people affected.
The report noted that the latest increase reversed the progress Nigeria recorded between 2018 and 2021, when the proportion of people living in multidimensional poverty declined.
Nigeria’s Multidimensional Poverty Index value also increased from 0.175 in 2021 to 0.208 in 2024, reflecting a rise in both the incidence and intensity of deprivation.
The intensity of deprivation among multidimensionally poor Nigerians increased from 52.9 per cent to 53.6 per cent over the same period.
Unlike income-based poverty measures, which assess poverty based on how much people earn or spend, the Multidimensional Poverty Index examines overlapping disadvantages experienced in daily life.
The index measures deprivation across three dimensions: health, education and standard of living.
Its 10 indicators include nutrition, child mortality, years of schooling, school attendance, cooking fuel, sanitation, drinking water, electricity, housing and household assets.
A person is classified as multidimensionally poor when their household experiences deprivation in at least one-third of the weighted indicators.
The report showed that Nigeria had made progress in reducing multidimensional poverty before the latest increase.
The country’s index value declined from 0.230 in 2013 to 0.202 in 2018 and 0.175 in 2021 before rising to 0.208 in 2024.
Similarly, the proportion of Nigerians living in multidimensional poverty fell from 42.3 per cent in 2013 to 37.2 per cent in 2018 and 33 per cent in 2021 before increasing to 38.7 per cent in 2024.
The number of affected Nigerians also declined from 76.3 million in 2018 to 72.2 million in 2021 before climbing to 90.1 million in 2024.
The report further highlighted significant differences in multidimensional poverty across Nigeria’s subnational regions, with incidence ranging from 3.7 per cent to 88.3 per cent across the regions covered by the analysis.
It compared Yobe and Sokoto, two of Nigeria’s poorest subnational regions with similar Multidimensional Poverty Index values, to illustrate how the forms of deprivation experienced by communities can differ despite comparable overall poverty levels.
Globally, the report estimated that 1.2 billion people across 108 countries lived in acute multidimensional poverty.
Sub-Saharan Africa accounted for 616 million people living in multidimensional poverty, while South Asia followed with 393 million.
The report also found that 83.3 per cent of the world’s multidimensionally poor population, equivalent to approximately 998 million people, lived in rural areas, compared with 200 million in urban areas.
Children below the age of 18 accounted for 617 million, or 51.5 per cent, of the world’s multidimensionally poor population.
In sub-Saharan Africa, 355 million children lived in multidimensional poverty, accounting for 57.7 per cent of the region’s poor population.
In a bold move to deepen retail participation in Nigeria’s capital market, the Aliko Dangote Foundation (ADF) has unveiled a share grant initiative aimed at helping up to five million tertiary students and two million vulnerable women become shareholders in Dangote Petroleum Refinery and Petrochemicals (DPRP) through its Initial Public Offering (IPO).
Managing Director and Chief Executive Officer of ADF, Zouera Youssoufou, disclosed that the Foundation will match qualifying share subscriptions by eligible beneficiaries. Under the programme, students who subscribe for the minimum 10 shares worth N5,250 will receive an additional 10 shares funded by the Foundation, subject to the approved process and allocation, effectively doubling their holdings to 20 shares.
Speaking during a television interview, Youssoufou said the initiative was designed to turn the refinery’s “People’s IPO” vision into reality by giving traditionally underserved groups a direct stake in one of Africa’s largest industrial assets.
“When Aliko announced the IPO, he described it as the IPO of the people and wanted as many Nigerians as possible to participate,” she said.
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According to her, students and vulnerable women were specifically selected because they have historically been underrepresented in the capital market.
The ADF said it is prepared to support up to five million students enrolled in Nigerian tertiary institutions, including universities, polytechnics and colleges of education. Eligible applicants must be at least 18 years old and enrolled in a recognised institution. The Foundation is working with relevant educational authorities to verify beneficiaries.
Youssoufou revealed that about N25 billion has been earmarked for the student component of the scheme, while the broader programme for students and vulnerable women is valued at approximately N40 billion.
She emphasised that the intervention is a grant, not an investment, with all shares ultimately belonging to the beneficiaries.
“The shares end up with the beneficiary. Our goal is to help people who may never have had the opportunity to own shares begin building long-term wealth,” she said.
Beyond students, ADF plans to support up to two million vulnerable women, including widows, women living in extreme poverty, persons with disabilities, and widows of members of the Armed Forces. The Foundation is partnering with state governments, the Ministry of Women Affairs, the Armed Forces and other institutions to identify eligible participants.
According to Youssoufou, the initiative is not only about widening ownership in the refinery but also about promoting financial literacy, encouraging a culture of savings and investment, and helping Nigerians build sustainable wealth through participation in the capital market.
Nigeria’s efforts to increase production and curb crude oil theft still leaves her short of meeting the demands of the 700,000 barrels demand of the Dangote Petroleum Refinery and Petrochemicals (DPRP).
Minister of Finance and Coordinating Minister of the Economy, Taiwo Oyedele, made the disclosure during an interview on Channels Television’s Politics Today at the weekend.
The disclosure comes amid renewed debate over government intervention in the petroleum market, with proposals for production subsidies, the 30-days petrol discount and other measures to support domestic refining and reduce the cost of petroleum products.
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He explained that Nigeria’s total crude oil production does not translate into an equivalent volume available for allocation by the government.
Oyedele said Nigeria’s crude oil production of about 1.8 million barrels per day was shared among parties operating under production-sharing contracts and joint ventures, while production costs, royalties and other obligations further reduced the volume available to the government.
“Under the production-sharing contract and joint venture, they share these things, and the ratios vary. Let’s say roughly 45:55,” he said.
He explained that oil producers first recover eligible production costs through cost oil, while royalties and contractual sharing arrangements also determine the quantity ultimately accruing to the government.
“The long and short of what I’m telling you is whatever is left for Nigeria, we exhaust it almost entirely because of fuel subsidy,” he said.
According to the minister, the situation was particularly severe before President Bola Tinubu introduced the economic reforms in May 2023, when the Nigerian National Petroleum Company Limited (NNPC Ltd), which holds the country’s crude on its behalf, had less than 100,000 barrels of freely available crude remaining.
He said the government had exhausted much of its revenue and resorted to printing money before turning to future crude oil production to secure commitments used to finance present consumption.
“That was a ticking time bomb,” Oyedele said, describing the arrangement under which future oil production was committed to support current fuel consumption.
The minister, however, acknowledged improvements following increased production, efforts to reduce crude oil theft and the renegotiation of some existing commitments that had tied down the country’s crude.
He cited comments by business leader Tony Elumelu, who had previously expressed frustration over the scale of crude oil theft in Nigeria, and subsequently reported an improvement in the situation.
Despite these gains, Oyedele said the country was yet to attain the level of freely available crude required to supply the Dangote refinery with its full daily requirement.
“But we are still not at the point where we can give Dangote 700,000 barrels,” he said.
The minister dismissed proposals for the government to supply the refinery with discounted crude or at production cost, arguing that such proposals failed to recognise the constraints on the volume of oil available for allocation.
“We don’t have enough to service Dangote. Dangote imports crude,” he said.
He added that the naira-for-crude arrangement introduced by the Federal Government had helped provide some stability but had not eliminated the supply constraints.
According to him, sustained increases in crude oil production and the release of additional barrels from existing commitments would eventually enable Nigeria to meet the requirements of Dangote and other domestic refiners.
“As we ramp up production and we free up some barrels, we’ll get to a point where we’ll be able to give Dangote everything he wants and other refiners will be able to get enough,” he said.
Oyedele also expressed hope that Nigeria would eventually refine all the crude oil it produces domestically and export refined petroleum products rather than crude.
The disclosure comes amid renewed debate over government intervention in the petroleum market, with proposals for production subsidies and other measures to support domestic refining and reduce the cost of petroleum products.
Oyedele further maintained that achieving that ambition will depend not only on the expansion of refining capacity but also on sustained growth in crude oil production and the availability of additional volumes for domestic processing.
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