7 Potential Dangers of Naira Devaluation to Nigerians

It's no news again that the Central Bank of Nigeria (CBN) through the Monetary Policy Committee has yesterday devalue the naira from N155 to N168 a dollar. The devaluation being around eight (8) percent.

Since 2008, the naira has been devalued by over 45 percent from N116 to N168 a dollar. The devaluation have been driven by dwindling Oil prices, weak economic policies and lax leadership. The international oil prices has nose dived from $112 to a barrel in June this year to less than $80  a barrel. The decline being over 30 percent have affected the Nigeria's monolithic economy being solely oil dependent. The Excess Crude Oil Fund which should serve as a cushion effect to the oil decline has been completely depleted by the Political Class.

 Here are the effect of Naira devaluation to ordinary Nigerians:

1. The Inflation Rate will increase
Inflation is increase in the cost of good and services in a country over a specified period of time. What this connotes is that cost of goods and services will increase while income is fixed. It  means one has to spend more in order to acquire a product. This will thus leads to lower buying capacity.

2. Cost of Funds Increases
As the naira is devalued, banks interest rate will go up and thus leads to higher cost of doing business in Nigeria. What this means is that business owners will have to pay more in other to carry out their business.

3. Interest Rate will increase.
In order for banks to secure their investment against inflation, the interest rate will go up. The increase is to compensate for inflation which might reduce or wipe their business capital

4.The Value of Household Income Reduces
Instant Naira devaluation means every Nigerians income have been reduced by 8 percent. What 1000 naira will buy last month will be less than what it can purchase today. The prices of goods and services will go up higher to compensate for the devaluation

5. Nigerians become poorer
Increase in prices of goods and service without corresponding increase in incomes leads to poverty. The value of  income is  logically  reduced which thus creates a poorer citizens

6. Cost of Importation Increases.
Nigeria being an import dependent economy will suffer with the devaluation of the naira. It means one has to spend more to import into the country.

7. Cost of Governance Increases.
Devaluation automatically increases the value of external debts and correspondingly the amount required for debt servicing. This will increase recurrent expenditure and reduce capital expenditure. It means Government will be doing less of Capital Projects will thus stiffens economic growth in the country.