Chatham House warns Nigeria against strengthening the naira, urging that its depreciation has made the country more competitive. The think tank highlights positive economic impacts, such as improved balance of payments and increased reserves, while recommending alternative measures to control inflation and sustain growth.
Chatham House, the UK-based international affairs think tank, has warned the Nigerian government against efforts to strengthen the naira, arguing that the country's economy has become more competitive due to its depreciation. In a recent report titled Nigeria’s Economy Needs the Naira to Stay Competitive, the think tank advised the government to resist revaluing the naira to combat inflation, asserting that such a move could hinder Nigeria’s long-term economic growth.
The naira has fallen significantly since early 2023, from around N460 to the dollar to just below N1,500. Chatham House emphasized that this devaluation has enhanced Nigeria’s competitiveness by making its exports more affordable and reducing the risk of trade deficits. The report explained that, in developing economies, the price of the dollar plays a crucial role. A cheap dollar encourages imports, making countries financially vulnerable, while an expensive dollar discourages capital flight and supports stability.
The think tank also highlighted the positive outcomes of the naira's depreciation, including an improved balance of payments and increased foreign exchange reserves, which now exceed $40 billion. These developments have contributed to a narrowing of Nigeria's fiscal deficit, from 6.4% of GDP in early 2023 to 4.4% in early 2024. Chatham House acknowledged that inflation remains a challenge but recommended that the government focus on enhancing monetary transmission and increasing public revenues rather than strengthening the naira.
