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Goldman Sachs Warns Of Possible Naira Devaluation Amid Falling Oil Prices
Goldman Sachs economists warned on April 17 of a possible naira devaluation due to falling global oil prices, which are affecting the country’s finances.
The concern is that Nigeria may need to devalue its naira again, as declining oil prices caused by US President Donald Trump’s trade war will strain its 2025 budget.
Goldman Sachs economist Andrew Matheny stated that Nigeria’s budget is under pressure due to unrealistic assumptions amid falling oil prices.
Matheny explained during an interview, “The natural policy response to lower oil prices is a depreciation of the naira, as this boosts oil revenues in local currency.”
The Finance Minister, Wale Edun, confirmed on April 8 that the federal government is reassessing the 2025 budget in light of the economic realities.
The Chief Executive Officer of the Nigerian Midstream and Downstream Petroleum Regulatory Authority (NMDPRA), Farouk Ahmed, warned that the drop in crude oil prices will negatively impact the Nigerian economy, national reserves, and the naira.
History of Naira’s Devaluations
Since the early 1990s, the Naira has been devaluated multiple times due to fluctuations in oil prices, economic crises, and foreign exchange management policies. Below is a summary of Several devaluation periods of the Naira and their reasons:
| Period | Exchange Rate | Factors Influencing Depreciation | Key Events/Trends |
| 1980s | ₦1 = $0.87 (1980)₦9.9 = $1 (1989) | Oil price fluctuations, Structural Adjustment Program (SAP) | 1986: Introduction of SAP, leading to devaluation. Depreciation due to high foreign debt and falling oil prices. |
| 1990s | ₦22 = $1 (1990)₦85 = $1 (1998) | Continued oil dependency, political instability, global oil price volatility | The country faced multiple devaluations due to economic sanctions during the Abacha regime, leading to a rise in foreign debt |
| 2000-2008 | ₦100-₦130 = $1 | Oil price boom, relative stability in domestic economy | 2000-2008: Oil prices rise sharply due to surging global demand, bringing relative stability to the naira. |
| 2008 Global Financial Crisis | ₦120 = $1₦145 = $1 (2008) | Impact of the global financial crisis, falling oil prices | Oil prices dropped significantly, impacting foreign reserves and the naira. |
| 2014-2016 | ₦155 = $1 (2014)₦400 = $1 (2016) | Plummeting oil prices, foreign exchange shortages, political instability | 2014-2016: Oil prices fell due to global supply glut and weak demand, creating a significant shortage of foreign exchange. |
| 2016 Devaluation | ₦280 = $1 (June 2016) | Global oil price slump | CBN adopted a flexible exchange rate system, devaluing the naira from ₦197 to ₦280. |
| 2017-2020 | ₦360 = $1 (2017)₦400 = $1 (2020) | Foreign exchange shortages, COVID-19 pandemic, oil price volatility | The naira experienced a slow decline due to global oil price instability and a weaker economy (US-China trade war) |
| 2021-2023 | ₦500-₦520 = $1 (2021)₦700+ = $1 (2023) | COVID-19 economic fallout, oil price recovery, and ongoing inflationary pressures | Official and parallel rates diverged significantly. The Naira weakened due to oil price fluctuations and limited dollar supply. |
| 2023-2024 | ₦800+ = $1 (2023) ₦1,300-₦1,500 = $1 (2024) | Oil slump, inflation, external shocks, reduced oil exports to crude theft and pipeline vandalism | The naira experienced further depreciation due to reduced foreign exchange inflows, low oil price, and geopolitical factors. |
Nigeria’s 2025 Budget Under Pressure
Nigeria’s 2025 budget was based on oil prices at $75 per barrel and a production rate of 2.06 million barrels per day. However, as of April 17, the Brent crude price closed at $67.59 a barrel, below the expected benchmark.
Oil exports account for 80% of Nigeria’s revenues, 50% of government revenues, and the bulk of its foreign reserves. According to Bloomberg, the naira declined by about 5% against the US dollar, trading at N1,620 per dollar on the black market on April 16, making it among the worst-performing currencies in the world.
Regarding output, Nigeria’s oil output slipped 9% to about 1.4 million barrels daily in March compared with January.
Rationale of Goldman Sachs’ Naira Depreciation
Goldman Sachs foresees a potential naira depreciation due to significant economic factors.
The Nigerian economy depends on oil exports for 80% of its dollar revenues, 50% of government revenues, and the country’s foreign reserves. According to Godman Sachs, a drop in global oil prices would reduce the country’s dollar revenues and hinder the Central Bank of Nigeria’s ability to support the Naira.
The country’s foreign exchange reserves enable the Central Bank of Nigeria to defend the value of the naira. Nigeria’s foreign reserves have fluctuated between $37 billion and $40 billion due to declining oil revenues and rising demand for foreign currencies.
Goldman Sachs is concerned that insufficient forex reserves from declining oil revenues will weaken the CBN’s ability to support the Naira. This will hinder the country’s ability to cover its imports, service its debt, borrow from foreign lenders, and attract foreign investments.
The inability to defend the naira will result in depreciation, further increasing inflation, which has already exceeded 20%. As inflation rises, the cost of living increases and the naira depreciates further.
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