According to Zainab Ahmed, Minister of Finance and National Planning, the Central Bank of Nigeria’s (CBN) recent strategy is driving the naira toward a single exchange rate.
The minister said the strategy will end the country’s numerous exchange rates, speaking at an interactive session on the Medium Term Expenditure Framework (MTEF) organized by the House of Representatives Committee on Finance in Abuja.
She did agree, however, that the strategy has exacerbated the crisis in the Nigerian capital market. Foreign investors are still shunning the stock market as a result of the policies, she said.
The currency was essentially devalued by 7.6% as a result of the strategy. The exchange rate had shifted from N379 to N410 to a dollar.
Mrs Ahmed told lawmakers that the approach is bringing the naira closer to a single foreign exchange rate.
“Foreign investors have not returned to the Nigerian capital market. The problem is made worse by the Central Bank of Nigeria’s depreciation of the naira.
“However, the naira is on its way to becoming a unified exchange rate.”
The outbreak of the COVID-19 and the sluggish recovery of the oil sector, according to the CBN’s Deputy Governor, Corporate Service Department, Edward Adamu, are the key causes responsible for the naira’s volatile nature.
Mr Adamu claimed that Nigerians in the diaspora had been unable to revert to pre-COVID-19 remittance rates.
“Crude oil sales have not been as high as we all want them to be, and obviously, following COVID-19, the global economy came to a halt, and crude oil use came to a halt as well.
“To the point where, in April of last year, crude oil was selling at a negative money rate, implying that people were being paid to store what they bought, reducing the opportunity for forex inflows significantly.
“When it comes to foreign portfolio inflows, you’ll notice that investors err on the side of caution, and so when the COVID-19 outbreak occurred, they moved about 120 billion dollars from emerging markets to America’s safe haven, and Nigeria was one of the countries from which the funds were withdrawn.
“On the remittances side, when our brothers and sisters abroad were unable to work due to the circumstances in which they found themselves, they had very little to send to us here, and remittances were reduced as a result.
“On the demand side, we saw speculative demand from Nigerians; if you needed a truck of goods, you wanted to get three trucks because you didn’t know what COVID would bring.
“With all of these pressures on both the demand and supply sides, dollar availability became more problematic, and the value of the naira declined or depreciated,” he said.
Abdullahi Saidu (APC, Niger), the committee’s deputy chairman, expressed worry over the impact of CBN operations in the agriculture sector.
According to the congressman, the CBN should focus more on providing facilities that will aid in food production.
Mr Adamu responded by blaming the country’s high food inflation on the onset of COVID-19 and widespread insecurity, he said the top bank was pumping $500 million per month into the parallel market as part of its latest strategy on Bureau De-Changes.
The CBN had already reversed its strategy of pumping foreign currency into the BDC.
“On BDCs, the CBN governor did announce and explain our thought process, saying that when these entities were created, they were supposed to serve retail end-users of not more than $5000 or less, but that is not what we’ve found. Instead, we’ve discovered ways to engage in arbitrage and other dubious behaviors. And, given that we had 6,000 BDCs, the monthly resources we provided them amounted to significantly less than $500 million.
“And we felt that redirecting those funds to the I & E window, which accommodates much more of the FX market, is much better for the economy than it is for a segment.”
Despite the apex bank’s claims, the policies have created some confusion in the FX market, resulting in the naira trading at a historic low against the dollar.