The Federal Government of Nigeria has adopted a new flexible exchange-rate policy for official transactions in a move that effectively marks the third devaluation of the naira in a year.
The government will start to use the flexible rate, which has until now applied to investors and exporters, for government transactions too, Bloomberg quoted the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, as saying while addressing reporters on Monday in Abuja.
The Nafex, as the flexible rate is known, has averaged N410 to the dollar since the beginning of the year and compares with the Central Bank of Nigeria’s old fixed rate of N379/$1.
“Within the government and the central bank, there is only one official rate and that’s the Nafex rate,” Ahmed said.
Nigeria has already devalued its currency twice since March last year. The naira was devalued to 379/$1 in August from 360/$1 in March 2020. Before the first devaluation in March, the currency was fixed at 306/$1.
Bloomberg reported that the adoption of the flexible-rate policy could assist discussions with the World Bank for a $1.5 billion loan that is partly conditional on currency reforms
A weaker naira will boost Africa’s biggest crude producer’s revenue from oil, which has been converted at the fixed official rate. Earnings from oil exports account for about half of Nigeria’s revenue and about 90 percent of foreign-exchange earnings.
The Nafex rate was introduced in 2017 as a way of wooing foreign investors without formally devaluing the currency. Recently, investors have complained about dollar shortages.
The central bank is clearing a backlog of demand for dollars “by releasing some certain amounts a month,” Ahmed said. The International Monetary Fund estimated the backlog at about $2 billion in February.