PricewaterhouseCoopers (PwC), a leading economic research and consulting firm, has hinged the attainment of the much-desired foreign exchange (FX) stability of the Naira this year on key factors.
The PwC economists noted that FX stability remained a pivotal issue in Nigeria, as the Naira depreciated by average of 39.8% in the official market in 2024, despite external reserves growing to $38.67 billion
The firm in its just published ‘Nigeria 2025 Budget and Economic Outlook’ report, which critically appraised the fiscal and monetary policy thrusts of the Federal Government in 2024 and the attendant impact on the economy, identified Price Discovery, Transparency and Market Friction, Liquidity, Supply-Demand Backlog; and Market and investor Confidence as critical factors that would help to ease FX volatility in 2025.
In their analysis, the experts recalled in Price Discovery, there was multiple exchange rates in the market pre-May 2023, which created opportunities for arbitrage and market distortions, projecting that the current direction by the monetary authorities towards to unifying multiple exchange rates into a single rate held promising outlook for the FX market this year.
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On Transparency and Market Friction, the analysts noted that in pre-May 2023 period, there was limited clarity and transparency in FX transactions largely due to bureaucratic bottlenecks in assessing forex, they predicted, however, that clearer guidelines and more accessible information for businesses and investors, and the introduction of the Enhanced Foreign Exchange Market System (EFEMS) by the CBN could make the FX stability outlook moderate in 2025.
Also, the firm’s report indicated that in pre-May 2023, there were multiple exchange rates in the market, which created opportunities for arbitrage and market distortions, adding that current direction towards to unifying multiple exchange rates into a single rate makes the FX market outlook positive this year.
This is even as the experts noted that on Liquidity of the FX market before May 2023, the average daily production was approximately 1.2 million barrels per day (mbpd), Oil prices ranged from $60 to $80 per barrel, impacting revenue generation, Nigeria attracted a sum of US$1.06 billion as capital importation in Q4 2022, indicating a decrease of 51.51%, and remittances were a significant source of foreign exchange totalling US$25 billion, but the inflows were inconsistent.
However, they noted that in December 2024, Nigeria’s average daily oil production was 1.49 mbpd; in Q3 2024, capital importation totaled $1.25 billion, a 91.35% increase from Q3 2023; from January to October 2024, diaspora remittances through IMTOs reached $4.22 billion, nearly doubling the $2.62 billion from the same period in 2023. They projected that this trend portended positive outlook for FX stability in 2025.
On FX Supply-Demand backlogs, the PwC analysts reported that Nigeria faced a substantial backlog of unmet foreign exchange (Foreign Exchange) orders in pre-May 2023 period, estimated at around $7 billion leading to exits from Nigerian market. They noted that now the government had made significant strides in addressing the Foreign Exchange backlog by clearing the $7 billion backlog, thereby making the trending outlook positive this year.
The analysts further noted that in Market and investor confidence in pre-May 2023 period both foreign and local investors were cautious due to the lack of a unified exchange rate and regulatory challenges, pointing out that now IMF noted that Nigerian capital market had been undergoing significant restoration of investor confidence while global portfolio investors were also showing renewed interest in investing in Nigeria. They maintained that this had made the outlook of the market moderate for 2025.
