Nigeria’s naira currency hit a record low against the dollar on Tuesday. The naira has been volatile since the Nigerian government eased currency controls in June, which had kept the currency artificially high. Officials have pledged to boost supply, but a shortage of U.S. dollars has persisted.
Despite Nigeria’s slumping currency, there are signs that investors are becoming increasingly optimistic about the country’s economic position. Moody’s raised the country’s credit outlook to positive this month, citing the devaluation of the naira as one of the reasons for its positive outlook.
Harsh economic reforms may pay off
After becoming president in May, Bola Ahmed Tinubu scrapped an expensive fuel subsidy and declared his intention to achieve 6%-plus growth in the coming years. The last time Nigeria achieved that growth rate was in 2014. The drastic reforms have contributed to the country’s surging inflation, which hit an 18-year high of 28.2% year-on-year in November. This has threatened to erase people’s savings in a country where 40% of the population already live in poverty, the Nigerian newspaper Business Day reported. The World Bank estimates that Nigeria’s economy will grow at an annual rate of 3.5% between 2023 and 2026, 0.5 percentage points higher annually than if the reforms were not implemented.
Nigeria has a mounting debt crisis
Nigeria is expected to spend at least six times more on servicing its debt next year than on building new schools or hospitals. Last year, debt service took up 96% of government revenues. The country has sought debt relief from the IMF and World Bank, making the case that its current level of debt is unsustainable. High interest rates in the U.S. and other established economies have had outsized effects on developing countries, which often have to issue bonds in U.S. dollars or euros to lure investors wary of currency volatility. About 60% of low-income countries are in risk of debt distress or already in it.
Tinubu courts oil companies
The country is introducing a range of incentives to boost oil and gas investment, as Tinubu’s government seeks to rapidly boost fossil-fuel production in a bid to revive the economy, Bloomberg reported. TotalEnergies and ExxonMobil have announced they will expand their oil and gas operations in Nigeria. But if Nigeria is to grow its oil sector, the Financial Times warned, it must crackdown on oil theft: Nigeria’s production hit an all-time high of 1.35 million barrels of crude per day in September, but theft and vandalism mean that Nigeria is losing an additional 300,000 barrels of oil daily, one Nigerian politician said. There are more than 4,800 illegal connections to Nigeria’s national oil pipelines, and allegations of oil theft have plagued the military.