Devaluation Fallout: Pension Funds Experience 45% Plunge in Dollar Value
In a significant financial setback, pension funds have experienced a sharp decline of 45.18% when evaluated in dollars, attributed to the recent devaluation of the naira.
As of September, data from the National Pension Commission’s website reveals that the net asset value of pension funds stood at N17.35tn, equivalent to $19.83bn when converted using the official exchange rate of 874.71/$ on Wednesday.
Prior to the mid-June devaluation of the naira, where the Central Bank of Nigeria aimed to unify exchange rates, pension funds were valued at N16.76tn in June, translating to $36.17bn in dollar terms using the exchange rate of 463.38/$ on June 9.
The Central Bank’s directive, announced on June 14, 2023, collapsed segments of the foreign exchange market into the Investors and Exporters window, later renamed the Nigerian Autonomous Foreign Exchange Rate Fixing window.
Despite government efforts to bolster the local currency, the naira has faced ongoing challenges against the dollar. In response, the Central Bank, in a bid to restore investor confidence, initiated the clearance of forex backlogs in banks this month.
The decision to harmonize forex rates stemmed from President Bola Tinubu’s inauguration speech, urging the CBN to unify the country’s exchange rate.
Additionally, the value of pension funds has been further eroded by accelerating inflation, rising from 22.79% in June to 26.72% in September.
Abdulqadir Dahiru, Head of the Corporate Communications Department at PenCom, emphasized the broader economic impact of Nigeria’s devaluation, stating, “Naira devaluation did not just affect pension funds; it affected everybody, and it is a twin thing. You have inflation and you have devaluation.”
Despite these challenges, Dahiru highlighted that pension funds employ diverse instruments, including fixed-income and variable-income assets, providing a degree of inflation hedging.
Pension funds play a pivotal role in Nigeria’s capital market, drawing international attention. During a recent visit by American institutional investors in October, calls were made to expand regulations to enhance pension fund administrators’ participation in the market. Cameron Khosrowshahi, Investment Team Lead of Prosper Africa, urged Nigerian stakeholders to collaborate with the pension regulator to facilitate increased liquidity injection into the Nigerian equities market by pension funds.
