Chatham House, a UK-based international policy think tank, has advised the Nigerian government against artificially strengthening the naira, arguing that its depreciation has enhanced the country’s economic competitiveness.
In a report titled Nigeria’s Economy Needs the Naira to Stay Competitive, the think tank stressed that for sustainable long-term growth, authorities should resist the urge to fight inflation by propping up the naira against the dollar.
According to the report, while inflation has risen under President Bola Tinubu’s economic policies, his reforms remain the most viable path to lasting economic progress.
“A key aspect of these reforms has been Tinubu’s decision to allow the naira to undergo a significant devaluation, dropping from N460 per dollar around the 2023 elections to nearly N1,500 today,” the report stated.
It described the naira’s devaluation as one of the most substantial currency adjustments globally in recent years, second only to Ethiopia’s birr.
“With the naira’s decline, Nigeria is arguably at its most competitive level in the past 25 years,” the report noted.
Chatham House warned that making the dollar artificially cheap would drive up imports, worsening the trade deficit and increasing financial vulnerability. It pointed out that global investors can quickly lose interest in riskier economies, making it harder to finance deficits and leading to financial instability.
“Keeping the dollar undervalued encourages businesses and individuals to move their money abroad, seeking safer investment destinations at a low cost. When capital flows out of a country, it becomes difficult to establish a foundation for economic growth,” the think tank stated.
