How Macroeconomic Indicators Behave During the Periods of Currency Devaluation in Nigeria

Abstract

Currency devaluation in Nigeria poses significant challenges for key macroeconomic variables. This study examines the behaviour of  these variables around the periods when the Naira underwent major devaluation or depreciation, defined as episodes between 1980 and  August 2023 where the currency lost at least 20 percent of its value in a single year. The analysis aims to inform policy discussions in the  wake of recent exchange rate unification in Nigeria, which caused a notable surge in official and parallel exchange rates. Findings indicate  that the observed worsening of most macroeconomic indicators due to the current exchange rate unification policy is consistent  with the outcome of major devaluation events in the past. The behaviour of most indicators one or two years after the  analysis suggests that the positive effects anticipated by the government from the current devaluation may not be fully realized in the  short to medium term. The study, therefore, recommends that the government adopt an expenditure-switching approach, a short-term  strategy for foreign purchases of domestic products, easing pressure on foreign reserves and ensuring transparency in the foreign  exchange market.