Nigeria’s currency, the naira, could face another devaluation soon as falling global oil prices strain the country’s finances, according to economists at Goldman Sachs.
Andrew Matheny, an economist at Goldman, stated that Nigeria’s budget is now under pressure due to optimistic assumptions that aren’t holding up in the face of weaker oil prices.
“The natural policy response to lower oil prices is a depreciation of the naira, as this boosts oil revenues in local currency,” Matheny explained.
A Budget Under Pressure
Nigeria’s 2024 budget was based on oil selling at $75 per barrel and a production rate of 2 million barrels per day. But as of March, production had dropped to about 1.4 million barrels per day, and oil was trading $10 below the expected benchmark.
Oil is crucial to Nigeria’s economy, providing the bulk of foreign exchange. The naira has already slipped about 5% this month, making it the second-worst performing currency globally, according to Bloomberg.
This comes after significant devaluations in 2023 and 2024, following FX reforms by President Bola Tinubu that loosened the naira’s dollar peg in a bid to attract foreign investment and market stability.
A Weakening Naira, Rising Inflation
Farouk Ahmed, head of the Nigerian Midstream and Downstream Petroleum Regulatory Authority, warned that losing $10 per barrel in oil revenue could have serious consequences.
“It hits our economy, our reserves, and the strength of the naira,” he said in Abuja.
A weaker naira contributes to soaring inflation, worsening the cost-of-living crisis that sparked deadly protests in 2024. In recent weeks, the Central Bank of Nigeria (CBN) has been selling foreign currency to stabilize the market—but this strategy is draining foreign reserves.
Experts Weigh Options
Ikemesit Effiong of SBM Intelligence in Lagos warned that constant intervention is unsustainable.
“A managed devaluation or a shift to a more flexible exchange rate may become inevitable,” he said.
Still, not all analysts agree that devaluation is unavoidable. Mark Bohlund of REDD Intelligence believes budget cuts and fiscal tightening might help avoid a drastic currency move.
“Expenditure cuts will likely be the go-to strategy instead of a bigger FX rate adjustment,” Bohlund said.
Revisiting the Budget
Finance Minister Wale Edun recently confirmed that the government is reassessing the 2024 budget in light of the first quarter’s economic realities.
“We’re going back to the drawing board to see what’s changed,” he said.
