Economy
Why Naira re-denomination will fail in Nigeria — Experts
Against the backdrop of sustained rumors about the introduction of the Naira re-denomination by the current government, economy analysts and corporate chieftains have painted a discomforting picture of what the policy may entrench on the economy if carried out.
In the past month, there have been many insinuations from several quarters that the Central Bank of Nigeria, CBN, is planning to onboard the measure as part of its overall monetary policy package from the new team at the apex bank.
Re-denomination is often used to describe a process in which a country adjusts its currency by changing the nominal value which changes the actual purchasing power of the currency.
Though the CBN had denied the rumor many sources hinted that the apex bank has already consulted officially for the policy roll out and may have slated January next year for commencement.
Some experts also believe that it is either the apex bank is flying a kite to sample public opinion or they are actually about to announce the policy because ‘‘there is not smoke without fire’’.
Giving insight into the policy measure some of them, however, said it can improve price stability by making transactions more manageable and reducing the likelihood of hyperinflation.
But they also said it’s essential to caution that Naira re-denomination alone won’t directly impact inflation rates positively.
Some also noted that the talks about redenomination may be part of the struggle by the current administration to gain the acceptance of the people, but also explained that the success or otherwise of re-denomination as an economy booster depends on its implementation and the complementary measures taken to address underlying economic issues, particularly in the areas of price stability, foreign investment, and engagement with key stakeholders.
There could be elements of truth with persistence of the rumor – Adonri
In his own comments, David Adonri, Financial Analyst and Executive Vice Chairman, at Highcap Securities Limited, said: “The re-denomination of the Naira was first muted by Charles Soludo’s Central Bank of Nigeria, CBN, leadership but CBN did not implement the plan. It has resurfaced again after Godwin Emefiele shelved it. When rumours persist for long, there could be elements of truth in them.
“However, since CBN has dispelled the rumor, we shall take their word for it but remain alert.
“However, the reality may not be the case. It is not likely to enhance price stability because Nigeria’s inflation is scarcity derived amidst severe shortage of hard currencies. The huge supply gap will make the program unsustainable.
“Under present economic conditions, re-denomination will be an exercise in futility. It could further weaken the Naira and reduce the purchasing power of consumers as producers will lash on the opportunity to increase prices.”
It would amount to further macroeconomic instability — Olayinka
“However, should they eventually decide to embark on that journey now, I will advise they delay such a decision till a more auspicious time.
“And the reasons are simple: You cannot embark on currency redenomination when you are still grappling with the difficulty of stabilizing the macroeconomic environment. Doing so means that you will have to repeat the program multiple times in a short period, as the effort would amount to further macroeconomic instability in the short term.
“The essence of currency redenomination is to strengthen the new lower denominations as the medium of exchange, store of value and unit of account, by improving on pricing mechanism in the economy, where rounding up of asset prices could be possibly avoided to stabilize the general price level.
“Doing it at the wrong time, when the economy is in a prolonged state of disequilibrium could be counter-productive, as instability may soon return.
“With the current poor state of Nigeria’s foreign reserves and multiple emergency foreign borrowings coming up to create dollar liquidity, it could send a wrong signal to foreign investors that Nigeria is in an emergency situation, and that proper forecast of future exchange rate might be difficult.
“As mentioned earlier, currency redenomination is good for an economy that is currently enjoying a semblance of macroeconomic stability, so that its timely adoption could promote further stability. Doing it at a wrong time will not be helpful to effective exchange rate post-redenomination.
“The government should continue to run its ongoing adjustment program, with the appropriate policy framework, to a point of restoring external equilibrium, before embarking on currency redenomination, in order to have a stable effective exchange rate, post-redenomination.
“Good and careful planning of currency redenomination program, with timely implementation, could herald a new beginning for macroeconomic stability, especially, a new era of a very low or near absence of inflation, due to improved pricing mechanism in the economy.”
Re-denomination can aid price stability, but … — Adebija
For Gbenga Adebija, Chief Executive Officer, Business in Nigeria/ Former Director-General of the Nigeria-German Chamber of Commerce, the talks about redenomination may be part of the struggle by the current administration to gain the acceptance of the people.
He also explained that the success or otherwise of re-denomination as an economy booster depends on its implementation and the complementary measures taken to address underlying economic issues, particularly in the areas of price stability, foreign investment, and engagement with key stakeholders.
He stated: “The Tinubu administration is evidently working to establish trust and credibility with the public. Therefore, it is crucial to grant them the benefit of the doubt on this matter until proven otherwise’’.
However, he gave further insight on what should happen in the event of embarking on such policy.
He stated: “Re-denomination, in isolation, does not impact the exchange rate because it doesn’t alter the actual value of the currency relative to other currencies.
“Consequently, the exchange rate of the (Naira) re-denominated currency with others should remain relatively stable.
‘‘Re-denomination can, however, contribute to price stability by simplifying price calculations and accounting which are usually impacted by high inflation rates.
“Re-denomination, by itself, does not influence the true value of the currency or the economic fundamentals of the country. It primarily alters the way prices are expressed and how people interact with the currency.
“Often, it serves as a prelude to broader economic and monetary reforms, such as addressing inflation or introducing a new, more stable currency.
‘‘Therefore, the success of Naira re-denomination as an economy booster depends on its implementation and the complementary measures taken by the Government and Central Bank to address underlying economic issues, particularly in the areas of price stability, foreign investment, and engagement with key stakeholders.”
Enabling environment should come before re-denomination — Azeez
Also speaking on the Naira re-denomination kite, Olowu Babs Azeez, National Treasurer of the Association of Mobile Money and Banks Agents of Nigeria (AMMBAN), noted that since CBN has not said it would embark on the policy it is not necessary to appraise the policy.
However, Azeez who is also the Chief Executive Officer of Obat Global Investment Limited, stated: “If such should happen, the government should first do the needful by providing enabling environment for business to thrive which would encourage foreign investors, promote small scale businesses and sizeable numbers of entrepreneur.
“This has to do with good roads, adequate electricity supply, business-friendly government policy, tax reduction, avoid unnecessary levels on business establishment, reduce export duty and import duty on raw materials but increase import duty on products that can be manufactured or produced in Nigeria in other to promote local production.
“I believe with this, the economy has lot to benefit and it will strengthen our currency.”
“This is different from devaluation or revaluation, which involves changing the real exchange rate of a currency.
“Redenomination alone doesn’t directly affect the exchange rate. It’s mostly a psychological change, as the real value of the currency remains the same.
“Exchange rates are determined by various economic factors, including supply and demand, interest rates, and the overall health of the economy. It can however improve price stability by making transactions more manageable and reducing the likelihood of hyperinflation.
“However, it’s essential to caution that redenomination alone won’t directly impact inflation rates.
‘‘Redenomination is often part of a broader economic reform strategy. Nigeria should consider comprehensive economic reforms to address issues like inflation and exchange rate stability.
“Care should also be taken to manage public expectations, as redenomination doesn’t solve underlying economic problems but can help improve currency management.
“Public education is essential if the government finally decides to undertake the reform strategy.
“The government through the CBN should closely monitor inflation rates and take measures to control inflation, which is a significant factor affecting the purchasing power of the currency.
“I advise that Nigeria should consider redenomination only as part of a more comprehensive economic strategy aimed at addressing issues related to exchange rates, inflation, and overall economic stability.”
Ghana’s example, Soludo justified
Most of the experts spoke on the Ghana experience which has spanned 17 years now without any positive result.
On the Ghana experience, Olayinka stated: “When Ghanaian government announced the program in 2006, the country’s economy had not attained a semblance of stability, hence, the continued instability in the economy. Coming back to Nigeria, it could have been an appropriate program in 2007, when Prof. Charles Soludo introduced it before it was ignorantly shut down by late President Yar’adua.
“At that time, Nigeria had a right macroeconomic environment for timely implementation of the program, which include the following: Huge foreign reserves, enough to cover 36 months of import bills; Stable exchange rate; Stable interest rate; Stable and low inflation; Low level of public debt; High velocity of money that was accompanied with low inflation (very unusual to have this phenomenon); Continuous FDI and FPI inflows; Steady and reasonable level of economic growth; Low level of unemployment; Cash Reserve Ratio of about 4% means that economy was not troubled in any way; Availability of consumer credit across the spectrum of the economy and steady growth in capital formation; A near efficient financial markets, etc.
‘‘So, Nigerian economy could have benefited more from Naira re-denomination in 2007. It was unfortunate that late President Umaru Yar’adua denied Nigeria the timely implementation of currency redenomination program in 2007.”
Speaking on the Ghana experience with re-denomination, Mr Oyelaja stated: “When Ghana carried out the redenomination of its currency, the Cedi in 2007, it adjusted the nominal value of the currency by removing four zeros from the currency, making the currency more manageable. The real value of the currency did not change. The process only aimed to simplify transactions and accounting.
“The lessons from Ghana’s re-denomination experience underscore the significance of meticulous planning, public education, and alignment of the re-denomination process with more extensive efforts to stabilize the economy.
“It is essential to acknowledge that re-denomination is not a standalone remedy but should be an integral part of a comprehensive economic reform strategy.
“Thus, factors such as effective stakeholder communication, continuous monitoring and evaluation, coordination, and safeguarding the integrity of macroeconomic structures are of paramount importance.”
By Francis Onoh
It is the right of every Nigerian to be financially included in the system. Data from the country’s foremost financial institution, the Central Bank of Nigeria (CBN) and the organisation Enhancing Financial Innovation and Access show that approximately 40% of Nigerians adults are financially excluded.
Attaining the 3.4% projected growth in the economy’s GDP will be difficult if not impossible, if the petty traders, the local skill workers and the roadside sellers are excluded from financial services and products that can aid their businesses. Enhancing financial inclusion for economic growth requires that financial literacy be extended and incorporated into the activities of organisations that work at the grassroots, for example, religious institutions.
Although with low levels of literacy, Emeka, Haruna or Bankole as devoted adherents of their various religions, are more likely to understands that their money is secure in the financial sector, that products such as pension plan, health insurance schemes and access to credit are available for citizens who are financially included, if and only if leaders of their religion introduce financial literacy to them. Combining their obligation to teach articles of their faith with introducing their members to financial literacy is one way to go if our country has to remedy the financial exclusion created by poverty and limited access to formal education.From the Global Multidimensional Poverty Index, the dimensions of poverty are Health, Education and Standard of Living.
Access to financial services can encourage people to enrol in a health insurance scheme to ensure good health within a manageable expenditure. A financially included person will have formal or informal education by association, which will invariably improve the living standard.
A financially included person is more likely to increase their business share if they access credit facilities in the financial sector and stand a better chance to benefit from government poverty alleviation programmes or even access funds from international development.
Making about 40% of Nigerian adults, which is about 35 million people, financially included will enhance capital formation assets, improve citizens’ disposable income, grow the nation’s financial sector and in extension catalyse industrialisation, which the country direly needs at this time. Financial inclusion for all is a necessary good that should be pursued by the Nigerian government at all levels, and stakeholders, such as religious leaders, must be made aware of their obligation in this space.
The time to do this is now.
Francis Onoh writes from Enugu
The Bank gave this warning on Monday during the public presentation of its latest Nigeria Development Update report titled ‘Building Momentum for Inclusive Growth’ in Abuja.
President Bola Tinubu signed the 2025 Appropriation Act into law, approving a record budget of N54.99tn, the highest in Nigeria’s history.
The budget was raised from the initial proposal of N49.7tn submitted to the National Assembly.
The fiscal plan makes provisions for N13.64tn in recurrent expenditure, N23.96tn for capital projects, N14.32tn for debt servicing, and N3.65tn for statutory transfers, while projecting a deficit of N13.08tn, to be financed through domestic and external borrowing.
The budget assumptions include a crude oil benchmark of $75 per barrel, oil production at 2.06 million barrels per day, an average exchange rate of N1,400/$, and an inflation target of 15 per cent.
Speaking at the event, the World Bank’s Lead Economist for Nigeria, Mr Alex Sienaert, said that despite strong revenue gains recorded in 2024, Nigeria’s 2025 budget assumptions remain optimistic and may prove difficult to meet.
He said, “It’s a very ambitious budget. Even with the very positive revenue sort of tailwind that we have… even considering that, it looks like it’s going to be pretty hard to meet some of the ambitious revenue targets that are in there.”
According to him, key assumptions such as average daily crude oil production of 2.1 million barrels per day and a benchmark oil price of $75 per barrel are unlikely to hold, noting that current production figures are closer to 1.6 million barrels per day.
He also cited uncertainty over how much revenue would flow from the removal of the petrol subsidy and the planned windfall tax on foreign exchange gains, saying these could weaken the Federal Government’s revenue position.
“This is important because if it does turn out that the revenue targets are not met, then that could mean that the financing requirements are more than budgeted. And if the financing requirements exceed what’s budgeted, then that’s either going to create arrears pressures… or it could renew risks of recourse to things like deficit monetisation under large-scale Ways and Means,” he said.
Sienaert warned that although Nigerian authorities had pledged not to resort to the CBN’s overdraft facility, doing so again could derail the country’s fragile macroeconomic recovery.
“The authorities have been very clear that they will by no means be going back to large-scale use of Ways and Means, but were that to happen, it would be just extremely disruptive to the whole rebuilding of confidence in fiscal sustainability and in the naira ultimately,” he noted.
On broader fiscal matters, the World Bank called on the Federal Government to eliminate the electricity subsidy, which it described as a “wasteful, regressive subsidy.”
Sienaert said key fiscal reforms such as the removal of the petrol subsidy and the adoption of a market-reflective exchange rate had helped improve the government’s fiscal position, but further reforms were needed.
“There’s still a range of fiscal policy and fiscal management issues where more can be done to safeguard the gains that have already been achieved… just to name, there is still one kind of wasteful regressive subsidy, which is the electricity subsidy. So work to address that,” he said.
He also advocated for improved oil revenue transparency and a reduction in the cost of governance, saying efforts to increase non-oil revenue must continue.
Sienaert noted that although the Nigerian National Petroleum Company Limited began applying official exchange rates for fiscal transactions in October 2023, only half of the revenue gains from the subsidy removal had been remitted to the Federation Account by January 2025.
“It’s just going to be important in the coming months to keep tracking this, and ultimately that the full revenue gains from the difficult job of eliminating the subsidy do flow to the Federation so that that can support a continued healthy fiscal picture and, in turn, spending on development priorities,” he said.
On inflation, the World Bank economist said monetary policy reforms had helped reduce inflationary pressures but noted that consumer prices remained high.
“We do need to acknowledge that price pressures remain elevated,” he said. “The battle against inflation continues, and to extend the military analogy a little bit, there’s a kind of fog of war… quite dense just at the moment.”
He added that recent changes to the Consumer Price Index by the National Bureau of Statistics had made it difficult to determine the current trend in inflation, noting, however, that continued coordination between fiscal and monetary authorities would be critical to restoring confidence.
The World Bank further urged the government to ramp up implementation of its targeted cash transfer programme aimed at cushioning the cost of reforms on poor households. The programme currently offers N25,000 monthly for three months to 15 million recipients.
“The implementation has just been quite slow. So only about a third of those recipients have received transfers so far. The good news is that this is being scaled up… and just important that that effort really continues so that as many people as possible get help,” Sienaert said.
Looking ahead, he called for a new growth strategy based on a “private-led, public-facilitated” model.
The World Bank also stressed the need to reduce costs of governance, including cutting “wasteful expenditures that are not essential, such as purchase of vehicles, external training, etc.” and reducing “the cost of collection of GOEs (FIRS, NCS, NMDPRA, NUPRC, etc.).”
He emphasised the need for increased investment in education and health, noting that Nigeria’s combined spending in these sectors remained among the lowest globally.
“In 2022, Nigeria was only spending 1.2 per cent of GDP on education and 1.8 per cent on health, or $23 per Nigerian per year on education, $15 per Nigerian per year on health,” he said.
He said private sector growth must also be supported by improving the competitive landscape and reviewing trade policies that restrict access to essential production inputs.
“Competition is like the sort of secret sauce that drives innovation and economic transformation. And in Nigeria, there’s some evidence… that actually there are elements of competition policy, and there are conditions that are needed for good competition that actually even compared to some of Nigeria’s immediate peers… the Nigerian competitive landscape lags some of those,” he said.
The Bank believes that following through with these reforms will position Nigeria to achieve its goal of becoming a $1tn economy by 2030.
The Naira depreciated to N1,600 per dollar in the Nigerian Foreign Exchange Market (NFEM) today after three months of being on the N1,500 per dollar threshold.
Data published by the Central Bank of Nigeria, CBN, showed that the indicative exchange rate for the naira rose to N1,600 per dollar from N1,569 per dollar on Thursday, indicating N31 depreciation for the naira.
Likewise, the naira depreciated to N1,565 per dollar in the parallel market from N1,555 per dollar on Thursday.
Consequently, the margin between the parallel market and NFEM rate widened to N35 per dollar from N14 per dollar on Thursday.
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