Nigeria set to re-evaluate foreign exchange policy

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…may devalue naira further

By ODUNEWU SEGUN

WITH the current economic challenges facing the country, there are strong indications that the naira may be devalue further in other to allow for competitiveness, and also attract more capital into the system.

Speaking with investors recently in Lagos at a conference organised by Renaissance Capital, Vice President Yemi Osinbajo said that Nigeria is in the move to substantially re-evaluate its foreign exchange policy, adding that a more flexible approach to the currency should be expected soon.

“We believe there must be some substantial re-evaluation of the foreign exchange policy especially with a view to increasing foreign exchange supply, encouraging capital importation and also being able to allow free flow of remittances.”

He said with a more flexible policy, Nigeria would be able to attract more capital into the system and ease business in the country. The vice president said that the executive is “not responsible for monetary policy” but added that he hoped the central bank would act soon with the policy changes he talked about.

The International Monetary Fund has advised those piloting the country’s economy to allow for greater exchange rate flexibility as the first line of defence, but President Muhammadu Buhari has repeatedly expressed his support for the governor of the CBN, Godwin Emefiele’s maintaining of the naira’s official rate at 197-199 against the dollar since last year.

President Buhari has stood his ground that the naira should not be further devalued. This, the Nigerian business community and foreign investors have frowned at, saying that the presidency is interfering in monetary policy, which according to them, is hurting the central bank’s independence.

The central bank has imposed capital controls on foreign currency and capped the official dollar rate just below 200 naira, resulting in shortages of currency and hitting investment as foreign firms expect Nigeria to devalue sooner or later – a move that Buhari has said he opposes.

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Meanwhile, Nigeria is still in talks to obtain foreign loans to help fund a record $31 billion budget for the 2016 budget but is yet to make it clear on how it plans to fund a deficit of 2.2 trillion naira.

“We hope to access loans on concessionary rates, we are working hard to secure external funding,” Budget Minister Udoma Udo Udoma said in a speech, without elaborating. He reiterated previous estimates for external and domestic borrowing needs totaling 1.8 trillion naira.

Nigeria has applied for a $1 billion loan from both the World Bank and African Development Bank while also considering selling Chinese Panda or Euro bonds, though no details have been made public.

Growth last year fell to its slowest rate since 1999 at 2.8 percent and inflation rose to a near four-year high of 12.8 percent in March while capital imports were down 74 percent year-on-year in the first quarter.

On the parallel market, the naira weakened 1.25 percent on Thursday to 324 to the dollar. “People are holding on to their dollars in anticipation of an increase in demand for dollars by oil importers,” said Aminu Gwadabe, head of the exchange bureau operators’ association.

One senior banking official who declined to be named said there would be a meeting in the next few days between the central bank, which has sole responsibility for monetary policy, and market operators as the banks sought clarity on exchange rate policy following Osinbajo’s comments.

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