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Slumping naira adds to pressure on Tinubu to change tack

Government responds to critics with command economy tactics

On 18 February, armed state security agents surrounded a foreign currency trader in Abuja accusing him of sabotage. For many Nigerians, it was a throwback to the military regime of three decades ago when forex traders were routinely jailed.

Since late last year, security agents have been using draconian tactics against those companies and individuals seen as profiting by exploiting the gap between the official and parallel rates for the naira against the US dollar.

It started off as part of a wider investigation into claims of malfeasance at the central bank under former governor Godwin Emefiele. Armed security agents launched raids on companies, including Dangote Group, suspected to have colluded with Emefiele to breach foreign exchange rules.

The quickening descent of Nigeria's naira – and growing complaints of its inflationary effects – has prompted more hardline tactics by security officers.

The naira fell to a new low of 1,712 naira to the dollar on 19 February. Bankers blamed this on dollar shortages as the government seeks to clear its backlog of foreign currency payments to foreign airlines, hotels and other international companies. Another cause, they say, are lax controls on money supply. The central bank has printed another N7 trillion (US3.6 billion) since Bola Tinubu took over the presidency last May.

His initial round of shock therapy – ending fuel subsidies and floating the naira – was cautiously welcomed by credit rating agencies (AC Vol 65 No 3, Shock therapy keeps the people waiting). Tinubu warned ministers that they had inherited an empty treasury and unprecedented debt obligations from Muhammadu Buhari's government.

Abuja's promise in late January to clear a $5bn backlog of forex payments by March, having paid out some $2bn in January, has  piled pressure on the naira.

So, too, is the Tinubu government's appetite to take on additional borrowing, having asked parliament to approve nearly $8bn in loans as part of a 2022-24 external borrowing plan, expected to push Nigeria's foreign debt over $50bn.

Central Bank Governor Olayemi Cardoso has said that foreign exchange liquidity is improving. But complaints in northern Nigeria and from cities in the south are mounting as economic conditions tighten. Many Nigerians say the main effects of Tinubu's reforms are to squeeze living standards.

On 15 February, the Nigerian central bank confirmed that the country's inflation rate had accelerated further in January, reaching almost 30% in annual terms, driven by soaring food costs.

Tinubu may take heart from the rapid recovery of the Kenyan shilling, which clawed back over 10% of its value against the dollar last week after the government in Nairobi issued a $1.5bn bond. Kenya will have to pay an interest rate of over 10% on it. The bond was oversubscribed despite Kenya's own depleted forex reserves. Officials are taking that as a sign of growing market confidence in African sovereigns.

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