Nigeria’s currency, the naira, has been in a free fall.
It fell to a new low of N718 to U.S.$1 last week in the parallel market, with the Central Bank of Nigeria (CBN) struggling to stabilise the currency.
With the global energy crisis, the impact of Russia’s invasion of Ukraine and the Covid-19 pandemic wreaking havoc on the global economy, the naira seems not to be the only currency depreciating.
The Ghanaian cedi, for instance, has lost also 30.56 percent against the U.S. dollar in the last six months due to the global disruption among other factors.
However, as the apex bank is tasked with protecting the naira, the CBN is expected to put checkers in place by way of monetary policies to wedge the unhindered depreciation of the currency.
The CBN has blamed the non-remittance of dollars to foreign reserves by the Nigerian National Petroleum Corporation (NNPC), high demand for dollars, among others for the naira’s free fall in the official and parallel markets.
According to a CBN report, the unabating demand for foreign exchange for both goods and services is creating a demand and supply challenge in Nigeria, adding to the country’s huge propensity for imports.
‘Considering Nigeria’s heavy dependence on oil exports for foreign exchange earnings and government revenue, the impact of the oil market crash severely affected the government’s naira revenue and other macroeconomic aggregates including economic growth. Hence, the rate of exchange between the naira and other currencies has widened over the past few years’, the report said.
‘The United States (U.S.) dollar is gaining against all major currencies of the world. The imbroglio in Nigeria’s tertiary education sector has triggered an exodus of students from Nigerian schools, with its attendant payment of fees in foreign exchange. Summer travels by Nigerians have also impacted the demand side of the foreign exchange market’.
As a way to regulate the demand and sale of forex, the CBN ended the sales of forex to Bureau De Change operators and now only sells to commercial banks, saying the parallel market has become a conduit for illicit forex flows and graft.
CBN also undertook several policies, such as the RT200 FX Programme, 100 for 100 Policy on Production and Productivity, Naira4Dollar Scheme, RT200 FX Programme and the Non-Oil Export Stimulation Facility (NESF), in response to the inadequate forex supply and pressure on the country’s exchange rate.
The Naira4Dollar scheme was designed to incentivise the inflow of remittances from the diaspora into the country, while the RT200 FX Programme is aimed at raising $200 billion in forex repatriation, exclusively from non-oil exports, over the next three to five years.
These strategies are yet to reinforce the availability of forex in the country to stem the depreciation of the naira against the dollar.
The CBN governor, Godwin Emefiele, has called on Nigerians to play their role by ‘adjusting their consumption patterns, looking inwards and finding innovative solutions to the country’s challenges’.
However, an international economic analyst and consultant, Kalu Aja, told Development Diaries that the CBN is not ‘reacting to the data’ and doing enough to stop the fall of the naira.
‘There are only two options available to the CBN. One of them is to defend the current exchange rate. This means that they are going to use their reserves and try to supply dollars to all that are demanding and also circulating’, he said.
‘So if you go to your bank and the bank says we have dollars then, of course, the price starts to drop because dollars are everywhere.
‘But that means you have to spend your reserves. I don’t think they will do that; which means their only other option is to devalue. This means they will take the official rate of N416.37 to U.S$1 and match it to the parallel market value or put it somewhere at N600 to reduce the spread between the official rate and the parallel rate.
‘They seem not to do any. It is an optical call for them. The CBN is supposed to be independent but we have seen that the CBN governor has aligned himself to a political side so I don’t think they will want to devalue so near to the elections. I think they will try to defend it’.
Using data and economic metrics, the CBN should take a decisive policy stance to either ensure the sufficient supply of U.S. dollars at the current official rate or take the alternative.
Emefiele’s call on the citizens should rather be directed toward the incumbent administration. The government should be asked to scale export activities, especially in the non-oil sectors to increase the country’s foreign reserves and foreign exchange in circulation.
Photo source: CBN