CBN’s foreign exchange policy hurting economy–Institute

The demand management foreign exchange policy currently being used by the Central Bank of Nigeria is having a negative impact on the economy, the Institute of Fiscal Studies of Nigeria has said.

The Senior Fellow and Monetary Policy Lead, IFSN, Mr. Rislanudeeen Muhammad, said this in Abuja while stating the position of the institute on some recent developments in the economy.

He said the wide gap between the official and parallel exchange rate was depleting the nation’s external reserves, adding that except urgent actions were taken by the monetary authorities, the country’s external reserve might not be able to adequately finance its import.

Muhammad said owing to this wide gap, there was a need for the CBN to devalue the naira by between five and seven per cent in order to provide stability for the economy.

A five to seven per cent devaluation of the naira may result in an exchange rate of between N207 and N211 to a dollar as against the current official CBN rate of N197.

He said, “The wide gap between official and parallel exchange rates as currently experienced simply allows for extraction of rent.

“Our current reserves are probably less than six months of our import capacity. Our economy is therefore growing weaker by the day and our external partners are beginning to look down on us.

“The present exchange control policy cannot in itself encourage diversification by way of non oil exports as the goods to be exported will not be cost-effective due to our overvalued exchange exchange rate.

“Having gone through two devaluations already, Nigerians now know that there are no immediate adverse consequences of such action, but it will allow for credible and open foreign exchange for the country.”

As a result of the challenges facing the economy, Muhammad said there was a need for the Federal Government to take urgent actions to salvage the economy.

He listed some of the steps that needed to be taken as removal of fuel subsidy, the implementation of an open foreign exchange policy for the country, diversification of the economy, and adoption of an expansionary fiscal policy.

He said, “Inflation is already heading north wards at 9.4 per cent year on year. This is largely as a result of increased food prices in the midst of forex restriction.

“Imported food becomes more expensive, demand becomes higher than supply of locally produced food items.

“Even with good harvest, low supplies from North due in part to insecurity in the North East, import restriction as well as increased demand ahead of Christmas may push inflation towards double digit early in 2016.”

The Director-General of the institute, Mr. Godwin Ighedosa, said abolishing fuel subsidy would allow for transparency and cost effective supply of the product.