Nigeria adopted a new flexible exchange-rate policy for official transactions in a move that effectively marks the third devaluation of the naira in a year.
The government will start to use the flexible rate for transactions, that has until now applied to investors and exporters, Finance Minister Zainab Ahmed told reporters Monday in the capital, Abuja.
The Nafex, as the flexible rate is known, has averaged 410 naira to the dollar since the beginning of the year, 8% weaker than the Central Bank of Nigeria’s old fixed rate of 379 naira.
“Within the government and the central bank, there is only one official rate and that’s the Nafex rate,” Ahmed said.
Governor Godwin Emefiele may shed more light when the central bank announces its interest rate decision Tuesday.
A weaker naira will boost Africa’s biggest crude producer’s revenue from oil, which has been converted at the fixed official rate. Earnings from oil exports account for about half of Nigeria’s revenue and about 90% of foreign-exchange earnings.
Nigeria has already devalued its currency twice since March last year. The adoption of the flexible-rate policy could assist discussions with the World Bank for a $1.5 billion loan that is partly conditional on currency reforms.
The Nafex rate was introduced in 2017 as a way of wooing foreign investors without formally devaluing the currency. Recently, investors have complained about dollar shortages.
The central bank is clearing a backlog of demand for dollars by “releasing a certain amount of funds” on a monthly basis, Ahmed said. The International Monetary Fund estimated the backlog at about $2 billion in February.
“We see this as a positive move from the government and expect Nigeria’s export revenue to improve as a result of the government’s shift in stance,” Rand Merchant Bank’s Johannesburg-based analysts Neville Mandimika and Daniel Kavishe wrote in a note to clients on Tuesday.
