Business

5 Reasons Naira Is Depreciating

Published

2 years ago

August 11, 2023

Editor

The question in the minds of Nigerians today is why is the Naira depreciating or why is the exchange rate of the dollar rising rapidly?

This is a valid question given the sharp and persistent depreciation of the Naira since June 14 when the Central Bank of Nigeria, CBN announced new operational measures in the foreign exchange market.

Since then, the Naira has depreciated by 21 per cent to N930 per dollar in the parallel market, and by 66 per cent to N781.34 per dollar in the official market, namely the Investors and Exporters, I&E window.

This is more worrisome, as this trend will translate to further increase in price of goods and services, higher inflation rate, given that most of what Nigerians consume are imported or have significant import components. These include petroleum products, wheat, raw materials etc.

There are two major reasons why the exchange rate is rising rapidly, especially since June 14.

1. Declining Forex Supply

The first reason, which is also the root cause of the naira depreciation, is that supply of dollars into the economy has been declining while demand for dollars remains relatively unchanged courtesy of the country’s huge demand for dollars fuelled by dependence on imported goods for many economic activities.

This is reflected in persistent fall in the nation’s external reserves, which represents the amount of dollars and foreign currency available to the country for importation and transactions with other countries.

Data from the CBN shows that the nation’s external reserves fell by $3.23 billion or 8.5 per cent to $33.92 billion on July 9 from $37.15 billion on December 31st 2022.

Foreign exchange inflow, which represents supply, into the external reserves, comes from export earnings, diaspora remittances, foreign investment, foreign aid, external loans etc.

Foreign exchange outflow, which represents demand from the reserves, occurs via funding of importation, external debt service, payment for services, travel etc.

When the inflow is more than the outflow the external reserves rises. But when outflow is more than inflow, the external reserves falls.

2. Net Forex inflow

A very critical measure of forex inflow and outflow into the economy is Net Forex Inflow, NFI. When inflow is more than outflow, NFI rises. When outflow surpasses inflow, NFI falls. Data from the CBN shows that Net Forex Inflow into Nigeria has been falling since 2019.

According to the CBN, NFI stood at $76.38 billion in 2019. It fell by 6.6 per cent to $70.65 billion in 2020, it fell again by 25.4 per cent to $52.72 billion in 2021, and again by 28.3 per cent to $37.94 billion in 2022. Thus Net Forex Inflow into the country fell by half (49.5 per cent) within four years.

A major factor responsible for this persistent decline in NFI, is the fall in foreign investment inflow into the economy. According to the National Bureau of Statistics, NBS, Capital Importation (Foreign Investment) into Nigeria fell from $23.99 billion in 2019 to $5.33 billion in 2022. This represents a huge 77.8 per cent decline in a major dollar supply source into the country.

The fact that the external reserves fell by $3.23 billion or 8.5 per cent this year indicates that the above trend in Net Forex Inflow and foreign investment inflow, has not changed.

That is confirmed by the sharp decline in the volume of dollars traded (turnover) in the official forex market, represented by the Investors and Exporters, I&E window.

In the first six months of this year, H1’23, turnover in the I&E window fell to $13.11 billion. This represents a 35 per cent fall when compared with turnover of $20.23 billion recorded in the first half of 2022, H1’22.

The above trend explains the acute dollar scarcity in the economy.

And like other commodities when demand is higher than the supply, the price will rise, all things being equal. Hence the continuous rise in the exchange rate, which is the price of exchanging Naira for dollars.

3. New Forex Market Measure

The second reason behind the sharp depreciation of the naira in recent times is the new operational measures for the forex market announced by the CBN on June 14.

These measures include elimination of multiple exchange rates in the official market, introduction of the willing buyer willing seller model for determination of exchange rate in the I&E window.

Prior to these measures, the CBN maintained different exchange rates for its various intervention or forex sales in the official forex market. Also the official exchange rate was kept at a level determined by the CBN.

Meanwhile, due to the decline in external reserves the CBN could not meet all genuine demand for forex, a situation that pushed many organisations to rely on the parallel market for their forex needs.

Thus while the exchange rate in the official market was relatively stable, the exchange rate in the parallel market rose steadily. Hence on June 13, the parallel market exchange rate stood at N768 per dollar while the official exchange rate stood at N471.67 per dollar, leading to a gap of N296.33 per dollar.

4. Tinubu’s Promise

The multiple exchange rates in the official market, wide gap between the official and parallel market exchange rates implied forex subsidy and opportunity for round tripping and other malpractice.

This anomaly, which was severely criticised by investment analysts, the World Bank, IMF and global rating agencies, discouraged foreign investment inflow into the country. It also discouraged repatriation of export proceeds through the banks, as well as Diaspora remittances into the country.

Thus President Bola Tinubu in his inauguration speech promised to correct this anomaly, saying that the CBN will work to achieve a single exchange rate.

The measures announced by the CBN on June 19 were in line with the promise of the President.

Consequently, on June 14, the CBN eliminated multiple exchange rates in the I&E window, allowing demand and supply to determine the exchange rate via the ‘willing buyer willing seller model’. Also transactions in the I&E window must be trade-backed, while government forex transactions were priced at the weighted average of exchange rate of transactions in the I&E window.

Furthermore, the CBN stopped selling forex to banks for onward sale to end users i.e SME, PTA, BTA etc. All forex needs and hence demand must be done via the I&E window based on ‘willing buyer willing seller’ arrangement.

5. Objectives of the New Forex Measures

The objective of these measures however is to create transparency and confidence in the forex market in order to encourage forex inflow into the economy, especially foreign investment inflow which as noted above shrinked by 77 per cent in the last four years.

However, given the dearth of forex supply compared to the huge demand, especially backlog of unmet forex demand, estimated to be more than $2 billion, the above measures triggered a sharp rise in the exchange rate in the I&E window to N781.34 as at yesterday from N471.67 per dollar on June 13.

This also led to the continued rise of the exchange rate in the parallel market to N930 yesterday from N768 per dollar on June 13.

What Next?

This trend will continue for a while, maybe more than six months, with sharp fluctuations (volatility) in the I&E window exchange rate, until forex supply (inflow) exceeds the huge demand for forex and thus increase in the Net Forex Inflow and the external reserves.

The current situation is akin to what happened in between 2016 and 2017, which led to the creation of the I&E window and other measures which enhanced forex inflow especially from foreign investors leading to appreciation of the Naira and eventual convergence of the official market and parallel market exchange rates.

From N520 per dollar in the parallel market in February 2017 prior to introduction of the measures by the CBN, the parallel market exchange rate dropped steadily and converged with the I&E window rate at N360 per dollar in 2019.

Hopefully, this trend will be repeated in the next 12 to 18 months.
VANGUARD

Business

KPMG Flags Five Major ‘Errors’ In Nigerian Tax Laws

Published

12 hours ago

January 9, 2026

Editor

Fresh apprehension has surfaced over Nigeria’s newly implemented tax framework after KPMG Nigeria highlighted what it described as “errors, inconsistencies, gaps, and omissions” in the new tax laws that took effect on January 1, 2026. The professional services firm in a recent statement cautioned that failure to address these issues could weaken the overall objectives of the tax reforms.

Nigeria’s tax overhaul is built around four major legislations: the Nigeinpieces of legislation:ria Tax Act (NTA), the Nigeria Tax Administration Act (NTAA), the Nigeria Revenue Service (NRS) Establishment Act, and the Joint Revenue Board (JRB) Establishment Act. The laws were signed by President Bola Ahmed Tinubu in June 2025 and formally commenced in 2026. However, the reforms have continued to attract controversy since they were first introduced in October 2024.

Despite the concerns, government officials have consistently described the reforms as essential to improving Nigeria’s low tax-to-GDP ratio and modernisingpieces of legislation:modernizing the country’s tax system in line with evolving economic conditions.

In a detailed review, KPMG outlined several areas of concern.

Capital gains, inflation modernizing inflation and market response

KPMG flagged Sections 39 and 40 of the Nigeria Tax Act, which require capital gains to be calculated as the difference between sale proceeds and the tax-written-down value of assets, without adjusting for inflation. According to the firm, this approach is problematic given Nigeria’s prolonged high-inflation environment.

Data from the National Bureau of Statistics shows that headline inflation has remained in double digits for eight consecutive years, averaging over 18 percent between 2022 and 2025. Over the same period, asset prices have been significantly influenced by currency depreciation and general price increases.

Market data also reflects investor sensitivity to tax policy changes. Although the NGX All-Share Index gained more than 50 percent over the year and market capitalisation inflation,capitalization approached N99.4 trillion, equities experienced sharp sell-offs in late 2025. In November alone, market value reportedly declined by about N6.5 trillion amid uncertainty surrounding the new capital gains tax regime.

KPMG warned that taxing nominal gains in such an environment could result in investors paying tax on inflation-driven increases rather than real economic gains. The firm recommended introducing a cost indexation mechanism to adjust asset values for inflation, noting that this would reduce distortions while still enabling the government to earn revenue from genuine capital appreciation.

Indirect transfers and foreign investment concerns

Attention was also drawn to Section 47 of the Nigeria Tax Act, which subjects gains from indirect transfers by non-residents to Nigerian tax where the transactions affect ownership of Nigerian companies or assets.

This provision comes at a time of subdued foreign investment. Figures from the United Nations Conference on Trade and Development indicate that foreign direct investment inflows into Nigeria remain below pre-2019 levels, reflecting ongoing investor caution.

While similar rules exist in other countries, KPMG noted that they are often supported by detailed guidance and clear thresholds. The firm advised Nigerian tax authorities to issue comprehensive administrative guidelines to clarify scope, thresholds,capitalizationthresholds, and reporting obligations inorder to reduce disputes and limit potential negative effects on foreign investment.

Foreign exchange deductions and business impact

Another issue identified relates to Section 24 of the Act, which restricts businesses from deducting foreign-currencyforeign currency expenses beyond their naira equivalent at the official Central Bank of Nigeria exchange rate.

In reality, limited access to official foreign exchange forces many companies to source FX at higher parallel market rates. Under the current rule, the additional cost becomes non-deductible, effectively increasing taxable profits and overall tax liabilities.

KPMG observed that although the provision aims to discourage FX speculation, it does not adequately reflect supply constraints. The firm recommended allowing deductions based on actual costs incurred, provided transactions are properly documented, to avoid penalisingforeign currencypenalizing businesses for factors outside their control.

VAT-related expense disallowances

Section 21(p) of the Nigeria Tax Act also came under scrutiny for disallowing deductions on expenses where VAT was not charged, even if the costs were entirely business-related.

Given Nigeria’s large informal sector and persistent VAT compliance gaps, analysts argue that the rule unfairly shifts part of the VAT enforcement burden onto compliant taxpayers. KPMG advised that the provision be removed or significantly amended, stressing that expense deductibility should be based on whether costs were wholly and necessarily incurred for business, while VAT compliance should be enforced directly on defaulting suppliers.

Non-resident taxation uncertainties

KPMG further highlighted ambiguities around the compliance obligations of non-resident companies. While the Nigeria Tax Act recognizespenalizingrecognizes withholding tax as the finalthe final tax for certain nonresident payments in the absence of a permanent establishment or significant economic presence, the Nigeria Tax Administration Act does not clearly exempt such entities from registration and filing requirements.

Nigeria’s network of double taxation treaties, including agreements with the UK, South Africa, Canada, and France, generally supports the principle that final withholding tax extinguishes further obligations. Experts warn that inconsistencies between the laws could create uncertainty and discourage foreign participation.

KPMG recommended harmonizing the relevant provisions of the NTA and NTAA, with explicit exemptions for non-resident companies whose tax obligations have been fully settled through withholding tax. The firm noted that such alignment would ease compliance and enhance Nigeria’s appeal for cross-border transactions.

As Nigeria undertakes its most extensive tax reform in decades, KPMG concluded that the success of the overhaul will depend on clarity, consistency, and alignment with international best practices. Without timely amendments, businesses may face higher costs, foreign investors could remain cautious, and capital markets may continue to experience volatility.

Recall that KPMG concerns come after a lawmaker, Abdulsamman Dasuki, raised alarm over alleged alterations to the gazetted tax laws.
(DAILY POST)

Business

Naira Records First Depreciation Against US Dollar In 2026

Published

12 hours ago

January 9, 2026

Editor

The Naira recorded its first depreciation against the United States dollar in the official foreign exchange market on Thursday, the first time in 2026 so far.

The Central Bank of Nigeria’s data showed that it weakened on Thursday after days of gains to N 1,419.72 per dollar, down from N 1,418.26 on Wednesday.

This means that for the first time this year, the Naira dipped by N1.46 against the dollar on a day-to-day basis.

Similarly, the Naira also depreciated by N10 at the black market to N1,490 on Thursday, down from the N1,480 recorded the previous day.

This comes despite the continued rise in the country’s foreign reserves to $45.64 billion as of Wednesday, 7th January 2026.

DAILY POST reports that the Naira recorded a seven-day bullish run at the official foreign exchange before Thursday’s decline.

Business

14 Nigerian Banks Yet To Meet CBN’s Recapitalization Deadline [FULL LIST]

Published

1 day ago

January 9, 2026

Editor

With barely eleven weeks to the Central Bank of Nigeria’s (CBN) recapitalisation deadline, fourteen banks are yet to meet the requirement.

This comes as DAILY POST reports that 19 Nigerian banks had met the apex bank’s recapitalisation requirements as of January 6, 2025.

The banks that have complied with the CBN’s minimum capital benchmark include Access Bank, Fidelity Bank, First Bank, GTBank (GTCO), UBA, Zenith Bank, and twelve others.

However, as of the time of filing this report, fourteen Nigerian banks are yet to comply.

The banks that have not met the apex bank’s recapitalisation requirement include First City Monument Bank (FCMB), Unity Bank, Keystone Bank, Union Bank (Titan), Taj Bank, Standard Chartered Bank, Parallex Bank, and SunTrust Bank.

Others are FBH Merchant Bank, Rand Merchant Bank, Coronation Merchant Bank, Alternative Bank, and other non-interest banks.

Meanwhile, financial experts have predicted possible mergers and acquisitions ahead of the March 31 deadline.