Everyone is wondering how the naira devaluation is impacting the nigerian. As cost of imported goods increase people will 2 according to the marshalllerner condition, devaluation of currency will have a positive effect on trade balance. However, there are different schools of thought with divergent explanations of how devaluation improves or dampens a countrys economic fortune. The extent to which these problem affect the gross domestic product gdp iii the measures to solve these economic problems. Currency devaluation and economic growth the case of ethiopia. Traditionally, there are three main approaches to devaluation or currency depreciation. The dynamics of exchange rate in nigeria central bank of nigeria.
According to the elasticity framework, devaluation improves a countrys balance of trade when the marshalllerner. The problem is that this devaluation will eventually curtail foreign investments in nigeria. The dominant interbank rate of the naira was immediately set by the banks at almost the same level usd 1 ngn 365 as opposed to ngn 367, amounting to a significant devaluation to well below the value of the official rate still fixed at usd 1 ngn 305. The international experts keep insisting that parallel exchange rate damages the nigerian economy. Businessworld analysis of the exchange rate and devaluation. There is agitation from investors and the imf to devalue the currency to stimulate economic growth, encourage export and discourage import. Combining these two factors, the employment outlook for skilled. The merger of autonomous and official exchange rates. Effect of exchange rate depreciation on trade balance in nigeria. Moreover, it seems that history is about to repeat itself. The devaluation of naira and its effect on the economy. Naira devaluation therefore refers to the deliberate lowering of the value of the naira in relation to other countrys currenc y within the contex t of a fixed exchange rate mana gement system. Combining equations 6 and 7, the longrun equilibrium relation for the foreign.
Furthermore, one of the aftermath effect of devaluation of the naira is the balance of payments deficit. Review of related literature currency devaluation momodu and akani 3 affirmed currency devaluation to be an endogenous factor affecting economic performance generally, where the required factors to aid achieve its positive benefits are not available. Pdf assessing the impact of nigerias naira depreciation on. Impact of devaluation of naira in the nigerian economy. If the federal government insists on refusing the depreciation, then nigeria may lose investors. Pdf naira is the currency denomination in nigeria and currently, the country is said to be a net importer of. Hence the need to know effective this last result tool will be in nigeria. If the current trend continues, it will truly give any investor a pause before investing in nigeria because it appears that at the current rate of volatility of the naira there is no investment in nigeria that will produce a good return on investment. Devaluation is a deliberate reduction in the value of a countrys currency in relation to the currencies of other countries. Pdf currency devaluation and nigerian economic growth. Combining equations 1 and 4, an arma r, z process is.
The naira was trading at 148 naira to the dollar when he took office in 2009 and was 164 naira by the time he was suspended from office in february 2014. Modeling and forecasting naira usd exchange rate in nigeria. Directly after the peg was abandoned on 20 june, the currency lost over 40% of its value against the usd and fell to 282 ngn per usd. Implications of the continued devaluation of the naira. It appears that the official rate will now only be used by importers of fuel, and all other rates have been scrapped. Afriheritage policy working paper 2018001 africa portal. Businessworld analysis of the exchange rate and devaluation several economic theories posit that devaluation will most likely improve a nations trade balance. Whereas devaluation is deliberate, depreciation of currency is caused by some macroeconomic factors.
Exchange rate depreciation and the structure of sectoral prices in nigeria under. Devaluation can bring growth through improvements in price competition. Nigerian naira data, forecasts, historical chart was last updated on may of 2020. Effects of naira devaluation on the nigerian construction industry. Harris, n d mentioned that devaluation may also lead to higher growth by the reduction in relative firm. Effectiveness of naira devaluation on economic growth in.