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Naira devaluation will raise debt profile, inflation-experts

Experts have warned that the recent devaluation of the naira will lead to a rise in the debt profile of the country and banks in naira terms, in addition to other side effects.

The Central Bank of Nigeria recently adjusted the official exchange rate of the naira to the dollar on its website from N361 to N379.

A Professor of capital market at Nasarawa State University, Prof. Uche Uwalaka, stated that another side effect of the devaluation was that it would shrink asset values in dollar terms.

He said, “This will affect the global ranking of banking and capital market institutions. Banks that have borrowed in dollars from foreign institutions will be in more trouble. Our public debt stock will also rise in Naira terms.”

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The short term implications of the devaluation was that it would likely hurt the economy and bring some pains to most Nigerians. This was mainly because of the nation’s crippling over-dependence on imports and over reliance on oil revenue.

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According to a former President of the Association of National Accountants of Nigeria, Dr Sam Nzekwe, many companies are already suffering from effects of the COVID-19 pandemic. The effects of adding the cost of importation to their running costs would be too severe.

“If you have to convert from naira to dollar, then a lot of naira would have gone to procure the dollar than when the exchange rate was lower,” he said.

He also observed that more naira would be needed to repay loans in dollar terms.

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