With the global credit crunch, the exchange rate in Nigeria will suffer. The country’s reliance on foreign donor funds for development projects will suffer as well. As a result, revenue will contract, the stock market will crash, and capital inflow will be decreased. All of these factors will put pressure on the exchange rate, which is a major problem for the country. So, how can we protect ourselves from this crisis?
First of all, we must remember that the global financial crisis is coming in waves. The impact of these waves may cause a new set of problems in another country or sector. These knock-on effects will also affect the effectiveness of policy measures. The worst part is that they will lead to negative investor sentiments in the capital markets. This, in turn, has resulted in massive declines in stock prices, eroding the wealth of many investors. The IMF released a report on Wednesday, just ahead of the G20 ministerial meeting in Bali.
The problem is worse than a shortage of dollars. Nigeria’s official exchange rate has declined by 19.4 percent in the past five years, while the unofficial market is unyielding. As a result, a dollar today costs about 560 naira – nearly two-thirds of what it cost in January. This drastic devaluation has harmed Nigerian businesses as they can no longer import raw materials or components.
A collapse in the local currency has had a direct effect on the profitability of the domestic airline sector. Jet fuel bills have been higher than normal as a result of the currency collapse, and the lack of dollars in the market is limiting the amount of passengers and a low level of profitability. The government has little role in the lives of most Nigerians. With the currency plummeting, the Nigerian stock market index has lost over 12 percent since the beginning of the year. Investing in international currencies, on the other hand, will have a greater impact on the country’s economy.
In addition to affecting the economy of Nigeria, the global financial crisis is causing major losses for many countries, individuals and corporate entities. Many of the most prominent businessmen have lost their fortunes in this crisis. The effects of this crisis are also affecting Nigerian banks. A recent report by the World Bank shows that a global economic crisis is affecting the Nigerian economy. It has led to many suicides, including some very high profile businessmen.
In the past few years, Nigerians have largely relied on the petroleum industry to support the economy. The country’s oil revenues accounted for nearly 75% of its total GDP in the last year, and it is still a major source of foreign exchange earnings. In fact, the country’s total oil reserves were estimated at 22.5 bn barrels at the end of 1998, which is more than enough for 30 years of output. With the rising interest rates, the naira may drop below fifty cents by 2023.
