Budget Blowout Risks Breaking Through Nigeria's Naira Defenses
- Foreign-exchange supplies curbed to shore up currency
- Oil slump has battered finances of Africa's biggest producer
Nigeria has withstood mounting pressure to devalue the naira since March, defending the currency against events ranging from the crash in oil prices to being booted out of one of the world’s biggest emerging-market bond indexes. The defense may not hold for much longer.
A record 6 trillion-naira ($30 billion) budget for 2016, and the prospect of more borrowing to pay for it, will increase demand for imports and swell the amount of local currency in circulation, making it harder for President Muhammadu Buhari’s government to hold the exchange rate, according to Credit Suisse Group AG and Investec Ltd. While the naira is all but fixed at 197-199 per dollar, prices of forwards suggest traders expect it will weaken 11 percent to 222.5 in three months and 23 percent to 258.5 in a year.