Nigeria's exchange rate volatility and distortions impact GDP

Research and central bank leadership indicate that exchange rate volatility and multiple foreign exchange regimes have significantly hindered Nigeria’s economic growth. A study by the Federal University Dutsin-Ma, published in the FUJAFR, found that currency fluctuations have been a persistent drag on the nation's GDP over the last 25 years. The study notes that unpredictable movements in the naira increase costs for manufacturers reliant on imported raw materials, such as pharmaceutical and automotive firms, and undermine investor confidence.

Complementing these findings, Central Bank of Nigeria (CBN) Governor Olayemi Cardoso stated that the previous multiple exchange rate system imposed a burden on the economy exceeding that of fuel subsidies. Cardoso noted that distortions from the dysfunctional exchange rate market cost the country approximately 3 per cent of its GDP. When combined with fuel subsidy costs, these economic distortions amounted to roughly 5.2 per cent of Nigeria’s GDP. The CBN has moved toward reforms aimed at establishing a transparent market based on willing buyers and sellers to eliminate arbitrage and restore financial stability.