Nigeria’s currency, the naira, lost 30 percent of its value after the Central Bank of Nigeria abandoned its peg to the dollar on June 20. The bank’s move was a substantial but long-overdue shift after a year of haphazard and detrimental economic policy under the administration of President Muhammadu Buhari. It took 16 months for the bank to abandon its peg, which had exacerbated negative external economic factors, including depressed global oil prices, and helped move the country toward a recession.
The lag in policy change is indicative of a slow, centralized and politicized decision-making process under Buhari. The abandoning of the peg offers the chance of improved policymaking, but won’t remedy the numerous headwinds facing Nigeria’s economy in 2016.
The Buhari administration shifted its stance on the naira as Nigeria’s economic indicators reached a watershed. In the first quarter of this year, the economy shrank by 0.4 percent, and inflation reached 15.6 percent in May, its highest level in 6 years. Though external factors, including low commodity prices and a slowdown in China and other emerging markets, are partially to blame, poor policy has exacerbated things. Buhari has rooted his economic policy in a stubborn brand of economic nationalism, driven by his fears of exposing everyday Nigerians to the impact of market-based policies. Centralized decision-making and a strict adherence to this brand of populism delayed the response to economic headwinds. Buhari remains wary of advice from foreign bodies, notably the IMF, and Nigeria’s business community. Instead he trusts only a close inner circle on policy matters, which for the past year largely excluded more pragmatic and technocratic members of his team.