The problems with Nigeria’s currency continue to hurt the economy and astonish both local and international experts and partners in development. Another report from the worldwide consultancy, Andersen, raises new feelings of trepidation over the melancholy direction of the naira and causes to notice the criticalness of a rescue mission. Sadly, the President and Major General Muhammadu Buhari (retd.), who drive the country’s fiscal and monetary policies, also, the Legislative leader of the National Bank of Nigeria, Godwin Emefiele, separately, have demonstrated unequipped for tracking down viable arrangements, however are quite a contributor to the issue.
On their watch, each monetary pointer is going south: Poverty, inflation, unemployment, and debt are all at all-time highs. Additionally, under increasing demand pressure, the naira continues to buckle as a result of rising inflation and scarcity. The parallel market saw the naira trade at N750 per dollar the previous week, which was clearly N290 higher than the official CBN rate of N460 per dollar.
With the crisis brought on by the CBN’s massive error with the naira redesign, experts have predicted that the naira-dollar exchange rate will continue to fluctuate at an even worse rate. The scarcity of the new notes has spread misery and nearly crippled the economy, despite the apparent goals of strengthening the economy, reducing expenditures on cash management, promoting financial inclusion, and removing currency from the formal system.
Andersen projected that the equal market pace of the naira would arrive at N900 to $1 in 2023, emerging from interest pressure in the event that financial drives were not significantly produced. “In 2022, the value of the naira was relatively more stable in the official market than in the parallel market, thereby widening the premium between the two exchange rate windows,” according to the report titled “Nigeria’s 2023 Economic Outlook,” which was presented by its partners in Lagos. This was because of the increased demand pressure brought on by currency illiquidity.
Nigeria’s economy is hugely import-driven and generally depends on the swing of the naira in return for the dollar at the authority and equal market windows. Currency speculators, middlemen, operators of bureaux de change, and the deficit in foreign trade further combine to make the naira vulnerable.
The organized private sector’s meager export earnings are exacerbated by the CBN’s dominant position as the primary forex source. Even though non-oil exports increased by 40% in 2022, the OPEC reported that petroleum exports accounted for $41.37 billion of Nigeria’s total export value of $46.86 billion in 2021, leaving a balance of $5.49 billion. This leaves the greater part of accessible dollars with the CBN.
The “Naira 4 Dollar” scheme for remittances from diaspora, the adoption of the NAFEX rate as the benchmark rate, the prohibition of forex sales to BDCs, and e-form A for online forex were all measures taken by the CBN to preserve the naira. E-naira, the Pan-African payment and settlement system, Eurodollar borrowing and IMF Special Drawing Rights, and payment of N65 for each $1 repatriated and sold at the IEFX window are all available to the CBN.
The naira’s persistent decline has not been halted by these measures. The persistent and crippling strategy of “defending the naira” continues to necessitate frequent withdrawals from external reserves. Financial Derivatives, a consulting firm based in Lagos, estimated that this would cost between $8 billion and $10 billion in 2002.
After the Central Bank of Nigeria (CBN) announced that direct forex sales to BDCs would no longer be permitted, the naira experienced a slight decline in 2021 during the parallel market hours. Emefiele described the BDCs as “renegade, greedy, and recalcitrant,” noting that, given their rent-seeking behavior, it was not surprising that their number increased from 74 in 2005 to over 2,700 in 2016 and nearly 5,500 today since the CBN began selling them forex.
Related News Old notes rejection continues to affect commuters and others. El-Rufai orders MDAs to accept old and new naira notes. Tinubu denies hoarding new naira notes. However, operational realities at the parallel market suggest that the BDCs continue to obtain a significant amount of forex through the back door. Officials who are corrupt have unrestricted access to currency, and the situation continues to produce billionaires for merely speculating on the naira-dollar exchange.
Terrorists, treasoners, kidnappers for ransom, and money launderers all have free reign. A thriving arbitrage market has developed as a result of the wide gap that exists between the official market rate and the parallel market rate. The productive sectors and businesses are being squeezed by the CBN’s utter inability to effectively monitor the banks, deter, and punish those who engage in illegal forex transactions.
When they are imposed at all, sanctions are insufficient to deter criminals. Five commercial banks were fined N1.46 billion in 2021 by the Central Bank of Nigeria (CBN) and the Securities and Exchange Commission for violating more than 20 regulations, including those pertaining to the forex market and anti-money laundering laws. It would appear that the fines were insufficient to prevent the flourishing forex racketeering.
Buhari and the Central Bank of Nigeria (CBN) must encourage exports and domestic productive activities, as well as small and medium-sized enterprises (SMEs), in order to save the naira and significantly improve the exchange rate. CBN reports that reserves decreased by $317 million in February.
According to the information provided by the bank, the amount of foreign reserves decreased from $36.99 billion on January 31 to $36.67 billion on February 27. Reserves had decreased from $37.08 billion at the end of December 30, 2022, which they had been, by $63.62 million in January.
In order to diversify the economy away from its dependence on crude oil, both the federal and state governments need to work together to encourage domestic production. States should encourage investments in rural infrastructure, ICT, agriculture, mining, industry, SMEs, and industry. To boost economic growth, promote financial inclusion, and reduce cash-based transactions, the Central Bank of Nigeria (CBN) ought to develop enduring and practical monetary policies.
In order to increase economic activity and external reserves, remittance inflows from the diaspora are crucial. As a result, the Central Bank of Nigeria (CBN) ought to significantly enhance this source of non-oil forex by implementing effective policies to stabilize the exchange rate and improve the country’s current account balance.
According to the World Bank, Nigerians sent $65.34 billion abroad in three years: 2018: $24.31 billion; $17.21 billion in 2020, compared to $23.81 billion in 2019. In 2021, it was $19.5 billion, and in 2022, it was $20.9 billion. The barbaric implementation of the naira redesign is hurting the economy, despite the fact that it was partly done to clean up the N2.7 trillion left behind by banks. The CBN must immediately reorient itself.