To Vice President Yemi Osinbajo, naira rate should reflect market realities.
He asked the Central Bank of Nigeria (CBN) to review the exchange rate policy to reflect the state of the economy and foreign exchange (forex) market realities.
Preserving the value of the currency, maintaining favourable external reserves position, ensuring external balance without compromising internal balance and the overall goal of macroeconomic stability, are the main objectives of Nigeria’s exchange rate policy.
But the vice president believes the prevailing exchange rate policy that places the official rate at N410/$1, does not reflect economic realities.
Osinbajo spoke at the opening of a two-day Mid-term Ministerial Performance Review retreat at the Presidential Villa, Abuja.
He also pushed for an arrangement that allows the ministries to drive the apex bank’s interventions in the economy.
Osinbajo’s position was interpreted yesterday in different perspectives with some saying the vice president called for naira devaluation.
But, experts believe the devaluation of the currency was unnecessary now.
They argued that the effective exchange rate – even by the International Monetary Fund (IMF) standard – is between N435/$ to N440/$. So, the over valuation is less than five percent.
According to Osinbajo, the dollar scarcity crisis can only be fixed when the market is made to reflect the real status of the economy. He said the demand strategy of the CBN has kept the rate artificially low.
He said: “Oil price at one point fell even below production costs; about $10 a barrel and then finally settled at about $45 a barrel during the second quarter of 2020. The official rate of the naira was devalued from N305 to the dollar, then to N380 to the dollar. This was by the third quarter of 2020.
“We can’t get new dollars into the system where the exchange rate is artificially low and everyone knows by how much our reserves can grow; so, I’m convinced that the demand management strategy currently being adopted by the CBN, we need to rethink, and that is just my view.”
The vice president noted that recent government interventions had revealed the need for synergy between the nation’s monetary authority, which is the CBN and the ministries, departments and agencies of government, which are the fiscal side of the economy.
He said policy implementation would be easier to achieve better results when such synergy exists. The vice president said Micro, Small and Medium Enterprises (MSMEs) could be managed between the CBN and the Federal Ministry of Industry, Trade and Investment, to achieve better results.
Osinbajo said: “There must be synergy between the fiscal and the monetary authorities. We must be able to deal with the synergy, we must handle the synergy between the monetary authority, the CBN, and the fiscal side. Sometimes, it appears that there is competition, especially on the fiscal side. If you look at some of the interventions, you will find that those interventions are interventions that should be managed by ministries.
“The Ministry of Industry, Trade and Investment should handle MSMEs interventions, and we should know what the CBN is doing. In other words, if the CBN is intervening in the MSME sector, it should be with the full cooperation and consent of the Ministry of Industry. Sometimes you will get people who are benefiting more than once because we simply have no line of sight on what is going on, on one side.”
Former Executive Director, Keystone Bank Limited, Richard Obire, spoke of the urgency for all stakeholders to think of ways of strengthening the naira, which should not be done by fiat.
He said: “How do we strengthen the naira, should it be done by fiat? Is that possible? There is no question that the weak currency has taken a heavy toll on the system. The cost of doing business is very scary, given that the capital requirement of SMEs that need machine replacement is harrowing. We want to see a stronger currency, but you cannot legislate on it.”
He said some bitter pills must be swallowed to save the naira, including taking steps that save foreign exchange wastages.
“If we are getting pained, we should know why. Let’s take the petrol subsidy, and what it is costing us in terms of pressure on the currency. They are not things that will happen quickly,” he said.
On the management of the intervention funds, the CBN also requires institutional capacity to manage the intervention funds. I doubt if the ministry will have the capacity to manage the funds.
The CBN has Development Finance Unit, which is handling it can get the voice of the particular ministry in the programme. We can have that co-ordination by having the voice of the ministries.
Obire said: “You don’t want the Vice President or President, that suggest that the CBN is not independent. It raises red flag on the side of foreign investors. You do not want to see the apex whose policies are dictated by the government.”
Speaking on the role of derivatives markets in forex liquidity recovery, Chief Executive Officer, FMDQ Group Bola Onadele, said the derivatives market remains a catalysts for boosting forex market recovery.
Onadele said that forex market is the nerve centre of the economy connecting agriculture, construction, commerce, and so on and making success of their operations. He explained that without a vibrant forex market, Nigeria cannot take its place in international trade.
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