Of Nigeria, I said that the lack of sufficient oil revenues was placing a cash drain on the finance ministry that would cripple the Nigerian government's efforts to ward off the insurgency of terrorist group Boko Haram who've sown a reign of horror throughout the West African country.
New information shows that the Nigerian government and finance ministry are four months behind on announcing the annual budget prompting many to believe that the nation could be headed into an economic contraction which isn't far fetched if you weigh up the severity of the foreign currency reserve depletion as a result of foreign firms demand for dollars far outstripping supply causing an imbalance in the accounts of the Central Bank of Nigeria.
A peg pipped against the US Dollar has failed to restrain the Naira from depreciating away from the pegged level of 200 with the 12 month forward rate Naira-Dollar being quoted as much 50-60% weaker than the peg.
Calls to drop the peg have been met with resistance from newly incumbent president Muhammadu Buhari who believes that the harshness of inflation that would flow into the economy as a result of a sharp depreciation would likely unhinge all the good work done in building up a solid foundation for the country's economy. Most critics believe Buhari didn't have a clear grasp of the developments happening in the oil market and thus over leveraged his bets of a bounce materialising at much higher levels. Again strong evidence of the over reliance on oil to generate government revenue.
Nigerian recession is imminent, central bank governor says https://t.co/RjqryCAqJo— Bloomberg Africa (@BBGAfrica) May 25, 2016
But in a twist of events Central Bank of Nigeria Governor Godwin Emefiele said the bank would be operating its foreign currency market based on a flexible system that would allow the free market to dictate equilibrium, hinting at reforms that would help the nation prosper in an easier motion.
The move came as much of a surprise as it did a shock for most who had expected some type of drastic measure to be implemented to prevent further economic calamity descending into the levels of despondency. Nevertheless the reaction from all quarters of its financial markets pointed to a favourably vote of confidence in the move.
Before we see any normality return into the fray, Nigeria will experience a much anticipated recession that could've been prevented had the government not acted quicker in removing the currency peg yet the long term benefits that would accrue from its existence far outweigh any short term discomfort founded on the back of a sudden adaption to a shock to the system.
The risk that once added additional return no longer resides in the investment equation making the flow of capital less hesitant to place its economically beneficial substance that'll find its way freely into the financial system and channel itself to where its needed most, breathing life back into a good story to tell.
In retreat for Buhari, Nigeria prepares to let naira weaken https://t.co/XOmlzzX178— Bloomberg Africa (@BBGAfrica) May 25, 2016
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