Stabilization of the exchange rate amid pressure on the naira — Opinion — The Guardian Nigeria News – Nigeria and World News
The continued and seemingly endless depreciation and instability of the naira against the US dollar and other foreign currencies has been a continued source of concern for most Nigerians and other stakeholders.
In the country and beyond, virtually everyone, including the seller of garri in the market, is now talking about the effect of the exchange rate on their economic transactions. Many consider the exchange rate to be a key determinant of the rate of inflation in the country.
These are indeed difficult times for every Nigerian who continually adjusts to the erosion of their hard-earned incomes by continued increases in the prices of basic consumer items. The most common scapegoat is usually the price of the dollar. The pressure on the naira is very real.
The current risks on the local currency are numerous. These range from depleted foreign exchange reserves, declining foreign capital inflows, heightened political risks, shrinking fiscal space and the generally poor management of the Nigerian economy. These have proven unsolvable for some time now and the situation seems to be getting worse.
Given the heavy reliance of the Nigerian economy on imports, imported inflation has become commonplace, so rapid changes in the prices of imported goods as well as local goods with a large share of imported inputs have become commonplace. current.
The main losers in this endless economic somersault are the wage earners on fixed incomes as well as the great army of unemployed who depend on the already impoverished wage earners for their livelihood. Nigeria appears to be at a crossroads in this seemingly endless crisis of the naira’s declining value against that of other foreign currencies, especially the United States dollar.
Conceptually, it is known that the exchange rate, like any other price, is the result of the forces of supply and demand. Virtually all governments, through the Central Bank, have concerned themselves with the management of these forces of supply and demand in relation to the determination of the exchange rate. Their success or failure in this regard has depended on the effectiveness of supply and demand management policies as well as local and international developments.
Since the advent of the Muhammadu Buhari administration in 2015, the exchange rate situation has been at its worst. From an exchange rate of 197 naira to the US dollar in 2015, the naira exchange rate quickly deteriorated to around 420 naira to the dollar in the official market and a whopping 585 naira to the dollar in the parallel market . That’s a huge N165 difference between the two markets, creating room for huge arbitrages or back and forths in the forex market. This is a great incentive for rent seekers in the market who would do whatever it takes to maintain this status quo.
Apart from external exogenous factors affecting the value of the local currency, the value of the naira has been largely mismanaged by the Buhari administration and the facts are quite evident in the public domain.
Allegations of huge political interference in the demand management process at the Central Bank of Nigeria (CBN) are quite numerous. According to Sanusi Lamido Sanusi, the former CBN Governor, while the Goodluck Jonathan administration has been identified with the fuel subsidy scam, the albatross of the Buhari administration is the dollar scam. This seems obvious because the naira was relatively more stable under Jonathan than under Buhari.
From there, the CBN, depository banks and unscrupulous politicians or those with ties to the current government are responsible in this regard. This is seen as one of the main forces fueling the widening gap between official and parallel markets as well as the overall depreciation in the value of the national currency.
The other contemporary demand management challenge is the alleged hoarding of foreign currency for use in preparatory campaigns for the upcoming general elections in 2023. This provision to incentivize voters even with foreign currency has been identified as the one of the causes of the scarcity of the dollar on the market today. This needs to be studied and dealt with. But given that Godwin Emefiele, the current CBN Governor is now a politically exposed person, who has shown interest in running for president under the ruling All Progressives Congress (APC) party, which will then lead the investigation appropriately?.
Another problem is that government efforts under the Buhari administration in promoting the use of “Made-in-Nigeria” products have been very weak. Therefore, the demand for foreign exchange for domestic production as well as for consumption has remained high over the past seven years.
Supply management has also been weak given the poor operating environment for export promotion, with the exception of crude oil. Excessive government borrowing by way of CBN advances, by tax authorities, is part of the problem coupled with the growing incidence of oil theft in the economy.
Internationally, the trend of rising interest rates around the world has become a huge deterrent to importing capital into Nigeria. Interest rates have recently been raised by their monetary authorities in major economies like the US, UK, South Korea, New Zealand, Brazil, Russia and even South Africa . Capital flows have therefore been redirected to these countries, with Nigeria losing out in this regard.
The solution is for the government to fine-tune its supply and demand management policies to save the naira from further decline against other currencies.
The incidence of political interference needs to be addressed very quickly, especially with the president not on the ballot in the 2023 election and someone likely looking for a legacy in his name as he leaves office in 2023.
Nigerians should be encouraged to buy local products – goods, education and health, among others. Local industries must be protected. The government should link the current economic situation to the promises made by the ruling party in 2015. The issue of corruption in the area of smuggling and collusion by the Customs and Excise Department should be investigated and resolved.
On the supply side, the operating environment should be improved, the implications of CBN Ways and Means progress minimized, and the current CBN Governor abstain completely from political activities in order to address exchange rate challenges. and monetary policy in the economy.
Alternatively, Emefiele should resign in order to pave the way for another expert to meet the challenge of the declining value of the naira. It is up to the fiscal and monetary authorities to show the way out of the current darkness. Nigeria can do better than it is doing now.