Economic Consequences Will Arise From Devaluation of the Naira

A known economist know as Dr Boniface Chizea has explained that there will be severe macroeconomic effect that will stem from the devaluation of the naira. He further stated that the economic growth of nigeria will be affected and inflationary pressure will increase.

He delineated that the most feasible option of the central bank of nigeria is the devaluation of the naira but that might not result to the desired effects.

Dr Boniface Chizea Futher elucidated the effects of the CBN action and its predicted effects

“Loans that were indexed on FX movements, and/or FX loans themselves, will be immediately repriced with higher interest rates and terms will be made much tougher. This could lead to widespread defaults, higher NPLs and financial system instability. Imports will become much more expensive, translating into higher production costs. Producers who can will pass the higher costs on to consumers, who will pay more the same goods. Producers who cannot pass on the cost will shut down their operations over time. Nigerians who buy FX from the CBN for school fees, medical bills, BTA, PTA, etc will pay much more in Naira.  Since imports value will rise astronomically and exports won’t our main export is oil which we cannot control its price or quantity, the country’s current account balance will go into deficit and make our balance sheet much worse!”

“Government debt service is already over 90% of revenue. A devaluation will make it over 100% easily, leaving the federal government with practically nothing to spend on anything else. Inflation, though high at 17%, has been trending down in the last 5 months. A devaluation to N550/$1 will push inflation to over 25%, and the lasting effects could push it further to 30% or beyond,” 

“Fixed income earners, which includes all government workers, will see their real wages (take home pay minus inflation) evaporate into thin air. The same pay they got last month, which they were already struggling to use to make ends meet, will simply buy less than half of what it bought them last month. The significant rise in inflation will ignite justifiable calls for salary increases and could cause social unrest, in a country where tensions are already high,” he added.

Dr Chizea argued that it is shortsighted to assume that the rates in the tiny parallel market which is less than 5% of Nigeria’s FX market, which serves many corrupt and illegal activities should determine the rate of the Naira.

In summary Dr Boniface Chizea explained  that the central bank of nigeria’s actions must be truly evaluated as the labor market and the  Nigerian economic climate in general may experience torid times if decisiona are not made strategically.