When around 100 Nigerian youths staged a protest calling on Central Bank Governor Godwin Emefiele to resign over the slide in the naira, bank officials were keen to play it down.
A central bank spokesman denied that there had been an actual media gag, but no major newspaper reported the protest after a meeting with the bank. “We will not get blackmailed. Mr Emefiele is working his arse off,” he told reporters.
In June, Nigeria dropped its currency peg, hoping the overvalued naira’s fall would attract investment into Africa’s biggest economy, which has been hammered by a slump in oil revenues.
But four months on, nerves are raw at the bank. The naira keeps falling and investors are staying away. Many are wondering how much further the currency may slide.
Emefiele had promised a “purely market driven” exchange rate but has retained hard currency curbs to limit imports of almost 700 goods. Those measures have kept the naira’s official rate at 310 per dollar but on the parallel – or black – market, where firms go to buy dollars for raw material imports, the currency is weakening inexorably towards the 500 mark.
With Nigeria importing everything from milk to machines, people are feeling the pinch. Annual inflation surged in August to 17.5 percent.
The central bank is braced for more naira trouble and recently conducted a stress test for banks to see if they can manage a naira fall 500 per dollar, financial sources told Reuters.
Brokerage Exotix even floated in a recent report the idea of a fall to 1,000 per dollar to see whether Nigerian banks, which have borrowed heavily abroad, can survive this “worst case scenario”.
Indeed, one Lagos-based industrialist, asking not to be named, said he had based his company’s 2017 budget on a possible rate of 1,000.
“It’s not unfeasible to see the exchange rate going to 550 per dollar but it will depend on FX liquidity conditions and in turn on how much external debt and investment inflows they can generate,” said Cobus de Hart, senior economist at NKC in Johannesburg.
The government has tried since the start of the year to borrow up to $5 billion abroad. But the only result is a loan worth $1 billion from the African Development Bank.
A planned $1 billion Eurobond would stave off naira collapse – but investors are unlikely to lend cash for much below 9 percent yield.
Senate leader Bukola Saraki told Reuters last month Nigeria needed to sell oil and other assets to avoid a “worst-case scenario” of seeking an International Monetary Fund (IMF) rescue.
Any IMF deal would come with strings attached and President Muhammadu Buhari has already rejected talks with the IMF with which he had a troubled relationship during his time as military ruler in the 1980s.
But Aly-Khan Satchu, CEO of Nairobi-based Rich Management, said options were limited and without a rescue the naira could drop to as much as 700.
“The sooner they do (IMF talks) the better,” he said. “They have talked to the World Bank, all the sovereign wealth funds but nobody is interested.”
Buhari was elected last March on a campaign to fight corruption and mismanagement which have left most of the 190 million Nigerians in poverty despite the country’s energy wealth. But many blame slow policy responses for exacerbating the recession that was sparked by the oil slump.
Jan Dehn, head of research at Ashmore, said last year’s decision to delay currency adjustment was followed by dollar rationing rather than a naira float. That has left potentially billions of dollars that need “clearing” through the system.
“You probably need to see a 10,20, 30 percent naira depreciation from here before you get full clearing,” Dehn said.
“It would then come in and probably ultimately end up 10-15 percent weaker than it is today or maybe 20 percent.”
Higher oil prices and output would help. Output has fallen by 700,000 barrels per day this year but should rise once Shell reopens a crude terminal shut after a militant attack. Authorities are also holding talks with armed groups that regularly disrupt supply in the Niger Delta.
Anders Faergeman, portfolio manager at PineBridge Investments, reckons if oil stabilises above $50 a barrel and output rises, the naira would look cheap.
But opaque central bank policies worry him.
“It makes us a bit nervous as to where the future lies for the naira and also for the central bank,” Faergeman added.