Economic and finance experts on Monday expressed varied opinions over the release of US$500million to various sectors of the economy by the Central Bank of Nigeria (CBN).
This is coming as the Naira on Monday depreciated to N1, 48.63 to the US dollar at the official market window.
This is according to data from FMDQ Exchange, a platform that oversees official FX trading in Nigeria
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The local currency at the parallel market also depreciated to N1,425 to the US dollar, according to Bureau De Change (BDC) operators in Lagos.
The CBN, in its determination to address the backlog of verified foreign exchange transactions, released the said sum, which comes barely a week after the Bank paid approximately US $2.0 billion to settle outstanding commitments across manufacturing, aviation and petroleum sectors.
Reacting to the development, founder of B. Adedipe Associates Limited, Dr Biodun Adedipe, applauded the apex banking sector regulator, saying that this is a proof that CBN has capacity to extinguish the matured obligations and that necessary forensic audit has confirmed that the obligations paid are genuine.
In a chat with the Nigerian Tribune, the renowned economist further said, “This should build confidence in the foreign exchange (FX) market and inspire a restart to normalcy.
“It is also a good signal to prospective foreign investors that have been tentative that the risk perception about profit and principal repatriation at investment maturity is not as high as commonly thought.”
On his own part, Professor Uche Uwaleke, a former Commissioner of Finance in Imo State and recently appointed Special Adviser to the Chairman of the Senate Committee on Banking, Insurance, and Other Financial Institutions stated that despite CBN’s interventions, the country still needs “a Buy Nigerian Law,“ if noticeable impact must be made on the local currency.
According to Uwaleke, it goes without saying that export-based diversification remains the only sustainable solution to the present FX crisis.
His words, “The current strategy of the government appears to focus on the supply side involving borrowing dollars to improve liquidity in the near term.
But it may not record any significant success except the unbridled demand for FX is dealt with. This is because the forex hole to be filled is quite huge.”
To curb the demand pressure, Uwaleke in a chat with Nigerian Tribune, suggested that the government should compel a change in consumption behaviour by enacting a ‘Buy Nigeria law’ akin to the ‘Buy America Act’ of 1933 and recently the ‘Build America, Buy America Act’ of 2021.
He also said that Nigeria’s import data support revisiting and scaling up the CBN’s currency swap deal with the Peoples Bank of China.
“Given that the bulk of Nigeria’s imports are from China, it stands to reason, therefore, to explore ways of bypassing the dollars and settling these transactions in the Yuan.
“This was the idea behind the currency swap with China which was largely inadequate in size.
“In order to increase the stock of Yuan in our external reserves, Nigeria can issue panda bonds, which are bonds denominated in the Chinese Yuan and are considered cheaper than Eurobonds, “ the former finance commissioner recommended.
Meanwhile, the Acting Director of the Corporate Communications Department at the CBN, Mrs. Hakama Sidi Ali, noted on Monday, January 29, 2024, that the Management of the CBN was committed to settling all legitimate foreign exchange backlogs within a short time frame.
Reiterating the assurances of the Governor, Mr. Olayemi Cardoso, Sidi Ali said the CBN had begun implementing a strategy to improve liquidity in the Nigerian foreign exchange markets in the short, medium, and long term.
“As the governor said, the CBN’s focus is on addressing fundamental issues that have hindered the effective operation of the Nigerian FX markets over the years,” she added.
While noting that the forex market reforms were designed to streamline and unify multiple exchange rates, foster transparency, and reduce arbitrage opportunities, Sidi Ali expressed confidence that a stable exchange rate would boost investor confidence and attract foreign investment.
She, therefore, urged all participants in the market to play by the rules, stressing that transparency in the market would enable the fair determination of exchange rates and, by extension, guarantee stability for businesses and individuals alike.
Recall that the CBN, over the past few months, has released various sums in its effort to clear the backlog of foreign exchange liabilities.
The apex bank governor had earlier stated that in the bank’s efforts to stabilise the exchange rate, it is imperative that it prioritises transparency and creates a market environment that enables the fair determination of exchange rates, ensuring stability for businesses and individuals alike.
“We believe that the naira is currently undervalued and, coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term. This coordinated approach will contribute to a more balanced and stable exchange rate, “ he assured.
Despite these efforts, forex shortages persist, impacting the value of Nigeria’s naira currency.
However, other financial experts say the naira may hit N2000 to a dollar exchange mark at the parallel market in a matter of months considering how the currency continues to depreciate both at the official and parallel markets despite efforts being made by the Central Bank of Nigeria.
The naira was N1,120/$ on December 31, 2023. It went down to N1,400 on Friday, January 26, 2024, at the black market, recording a drop of N200 or 16,6 percent. It was N898 to a dollar at the official market on December 31, 2023, to N910 last Friday.
Last week, the Nigerian foreign exchange market saw a historic decline in the value of the naira, which reached an unrivaled intraday high of N1,399 per dollar at the official market on Thursday, January 25.
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