With bold and decisive foreign exchange measures, followed by massive Naira depreciation, which combined with a fuel price hike to accelerate the increase in prices of goods and services, President Tinubu etched the first 100 days of administration in the sands of the economy and in the minds of Nigerians.

Forex market reform

In his inaugural speech, the President indicated his intention to eliminate multiple exchange rates, saying, “The Central Bank must work towards a unified exchange rate. This will direct funds away from arbitrage into meaningful investment in the plant, equipment and jobs that power the real economy.”

Fourteen days later, the CBN gave effect to the presidential intention. In a circular, titled, “Operational Changes to the Foreign Exchange Market”, the apex bank abolished multiple exchange rates in the official market. It also introduced a ‘willing buyer-willing seller’ model for determining exchange rates in the rates Investors & Exporters, I&E window. Furthermore, the CBN said government-related FX transactions will now be based on weighted average exchange rate of previous day transactions at the I&E window.

To complement the above measures, the CBN also removed restrictions on domiciliary accounts directing that banks should allow unfettered access to funds in these accounts. Domiciliary accounts are bank accounts for deposits and the withdrawal of foreign currencies.

Consequently, domiciliary account holders can now transfer up to $10,000 per day in cash deposits into their domiciliary accounts.

Naira depreciation

These measures, expectedly, triggered immediate depreciation of the Naira in the I&E window. On June 14th when the measures were announced, the naira lost almost half of its value in the I&E window, where the exchange rate rose to N664.04 per dollar from N471.67 per dollar.

Since then, and as of Thursday, August,24th, the naira has depreciated by 64 per cent or N300.02 in the I&E window from N471.67 per dollar on June 14th.

During the same period, the naira similarly depreciated in the parallel market by 17.2 per cent to N900 per dollar, respectively, from N768 per dollar.

Inflation

The naira depreciation triggered by the new forex measures combined with the increased fuel price worsened prices of goods and services, leading to a further increase in the annual inflation rate to 24.08 per cent in July, the highest in 18 years, since September 2005.

Data from the National Bureau of Statistics, NBS, showed that the average monthly increase in the inflation rate rose fourfold during the first two months of Tinubu’s administration.

In the five months before the administration, the annual inflation rate rose by 1.07 percentage points to 22.41 per cent in May, up from 21.34 per cent in December 2022.

This translated to an average monthly increase of 0.21 percentage points during the five months first two months of Tinubu’s administration, June and July. The annual inflation rate rose by 1.67 percentage points to 24.08 per cent in July from 22.41 per cent in May. This translated to an average monthly increase of 0.84 percentage points.

This means the increase in prices of goods and services accelerated fourfold in the first two months of Tinubu’s administration.

Economic Growth drops

These developments combined with the lingering effect of the naira scarcity reduced economic activities in the second quarter of the year, from April to June.

According to the Gross Domestic Product, GDP, report of NBS for Q2’23, economic growth slowed to 2.51 per cent from 3.54 per cent in the same period of 2022, Q2’22. This represents a decline of 1.03 percentage points in growth of the economic activities.

The GDP report of the NBS report covers 46 economic activities. 22 of the activities slowed while 8 contracted.

Analysts at Lagos-based Financial Derivatives Company, noted that most of the activities in this category are employment intensive, primarily affected by currency weaknesses, low consumer purchasing power, and heightened insecurity.”

The further reduction in growth of economic activities in manufacturing and road transport will continue in the remaining part of the year, projected analysts at Lagos baLagos-based stone Partners.

“Elevated consumer prices will further weaken purchasing power, with negative pass-through to trade and FMCG sectors.

“The elevated interest rate environment and dollar supply shortages will likely pressure manufacturing players.

“The elevated energy prices will likely lead to a recession in transport GDP due to the reduced number of cars on the road,” they said.

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This means the increase in prices of goods and services accelerated fourfold in the first two months of Tinubu’s administration.

During the same period, the naira similarly depreciated in the parallel market by 17.2 per cent to N900 per dollar, respectively, from N768 per dollar