Why Naira is on free fall-CBN gov
.Says Apex bank committed to implementing policies that will ensure stable macroeconomic environment
.Expert faults Cardoso’s presentation during television programme
By Ubong Ukpong and Tom Okpe
The Central Bank of Nigeria (CBN), on Tuesday, explained why there is constant depreciation in the value of the National Currency (Naira) against the United States Dollar, creating a volatile exchange rate for the country.
The CBN Governor, Olayemi Cardoso, who stated this at the sectoral debate organized by the House of Representatives on Tuesday, said Nigeria has spent $40 billion on school and medical tourism in 10 years, putting pressure on the Naira, which keeps depreciating.
Cardoso explained that foreign education expenses amounted to $28.65 billion while medical treatment abroad incurred about $11.01 billion.
He said given the substantial demand for education, healthcare, professional services, personal travel, and similar needs, the exchange rate is bound to face ongoing pressure.
“Given this data, it’s crucial to highlight that between 2010 and 2020, foreign education expenses amounted to a substantial US$28.65 billion, as per the CBN’s publicly available Balance of Payments Statistics.
“Similarly, medical treatment abroad has incurred around US$11.01 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totaled nearly US$40 billion. Notably, this amount surpasses the total current foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger Naira today.
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“Personal Travel Allowances have accounted for a total of US$58.7 billion during the same period. Notably, between January and September 2019, the CBN disbursed US$9.01 billion to Nigerians for personal foreign travel.
“Continuing on the topic of the demand for US Dollars, Nigeria’s annual imports, which require dollars for payment, amounted to US$16.65 billion in 1980. By 2014, the annual import expenditure had significantly surged to US$67.05 billion, although it gradually decreased to US$54.71 billion as of last year. Similarly, food imports escalated from US$2.63 billion in 1980 to US$14.84 billion in 2019,” Cardoso said.
He said while inflation pressures may persist, albeit temporarily, they are expected to moderate significantly by Q4 2024, noting that exchange rate pressures are also expected to reduce with the smooth functioning of the foreign exchange market.
“The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
“The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets.
“This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remuneration Standing Deposit Facility cap,” the CBN Governor said.
Cardoso noted that while the CBN has the mandate of stabilizing the exchange rate, achieving results would necessitate efforts beyond the bank itself and indeed to an attitudinal change of all citizens.
He said the CBN is committed to implementing policies that will ensure a stable macroeconomic environment and guarantee improved livelihoods for all Nigerians.
Cardoso added that the relocation of some departments of CBN to Lagos was not political but only implementation of what has been done before now, saying: “We did not change anything we have always done this to get closer to the banks for best results.”
Also speaking, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun said inflation, exchange rate fluctuations, and other factors causing hardship in the country were also being addressed while agriculture is being strengthened for maximum production and non-oil sector economic diversification.
Edun said the country is where it is at the moment due to series of economic policies over the years, admitting that the cost of living has spiked as a result of inflation.
The Minister said things will improve, many sectors will pick up and drive the economy and called on Nigerians to be calm, confident, and have faith in the ability of the government to turn around the economy for the citizens to prosper.
Speaking on the benefits of fuel subsidy removal, he said: “If you look at the finances of the government today, there have been benefits to the federation accounts. There have been deductions in the consumption of petrol because there was smuggling.
“There have been other benefits as a result of the changes. However, inflation has increased, the cost of living has hiked, and Mr. President is committed to making measures that will address major stumbling blocks to the nation’s economic growth.”
On his part, the Minister of Budget and National Planning, Atiku Bagudu also speaking on the state of the economy said that the current economic challenges being faced are looked into with a strategic plan to resolve them.
“We will overcome the challenges of the moment. People will be inconvenienced, but things will get better as the government implements the reforms. The challenges of the moment are being dealt with… We have been meeting with the Coordinating Minister of the Economy in addressing the issues affecting the nation’s economy.
“The key focus of the budget is on agriculture, security, and infrastructure. The allocation of 39% of the budget is a step in the right direction. For now, our focus is to improve on our revenue collection strategies.
The Executive Chairman Federal Inland Revenue Service (FIRS), Zacch Adedeji said the federal government has no plans to increase tax despite the target to collect N19.4 trillion from tax this year.
He said the target represents a significant increase of 56.9 per cent from the previous year’s actual revenue and 67.91 per cent from the previous year’s target.
“We have the target to collect N19.4 trillion and given the situation, we are not going to introduce new tax. Without increasing the tax rate, we will bring more people to the tax net. That is why we have to be more customer-centric. We want to improve our expertise on the way we collect tax from Nigerians.
“This will help to reduce multiple taxes. As an agency, we are not there only to collect tax, we are also providing economic advice and taxpayer service. We are not to tax poverty but we are to focus on prosperity and return on investment,” he added.
Meanwhile, a financial expert, Jidenma Ijede, has faulted the presentation of the CBN governor when he appeared on a television programme on Monday.
In a statement made available to the Business Times on Tuesday, ijede said Cardoso was entirely being diplomatic in all the responses that he gave during the programme.
Ijede asked: “If $2.4bn forward obligations were found to be criminally contrived and imputed into the books, can we have a list of the beneficiaries and the originating entities involved in this heist?
“What of the over $10bn in unpaid LC forwards and swaps with the deposit money banks that the CBN failed to deliver upon?
“What did Buhari and Emefiele do with the N23 trillion that was handed over to Buhari?
“What did Tinubu do with the N7.8trillion way and means monies that was printed and handed over to him in under 7 months [May 2023 to date?
“Have they stopped the way and means interventions that created over N31 trillion criminal slush funds that were used to attack the scarce dollar resources between May 2015 to December 2023?
“When is the CBN going to stop the deposit money banks from lending ODs to states and LGAs… You cannot allow them to borrow to loot and expect not to have price and fx instability …
Ijede said it sounds very comical when any Nigerian commentators submit that the naira is undervalued.
He asked: “What parameters did they used to arrive at their assessment?
“You can only guage the true intrinsic value of a local currency in relation to the global convertible currencies based on its historical performances, the strength/depth of its productivity, strength, soundness and integrity of the institutions of the state.
“The Singaporean dollar from 1990 to 2024 has gained from SGD1.63 /USD1 in 1990 to SGD 1.34 /USD1. The UAE Dirham has stayed at the level of 3.67/$1
“This reflects the productivity of the countries and the full faith the global investing community has on the leadership, institutions and transparency of the systems within those climes”.
He advised the CBN governor to realise that Nigeria Exchange rate should be a matter of national strategy rather than an outcome of global economic trends and their impacts on crude oil.
“What is Nigeria’s exchange rate strategy and what is our long term plan to accomplish it?
One of my very good friends brought a good perspective to this debate…
For instance, Japan built an export led economy and intentionally kept the Yen at a level that fit its economic plan.
“When you hear the US claim that the Chinese “manipulate” their currency, the Yuan, it comes down to the fact that the Chinese decided to become the “factory of the world”, exporting huge amounts of various commodities to different parts of the world and building up a portfolio of $868.9billion in US government securities.
“This is the same strategy the Vietnamese are executing.
“Nigeria has a reported reserve of $30b+ that’s illiquid hence the exchange rate brouhaha.
“We mismanaged our export proceeds and have kept no reserve. We deliberately steal over crude oil resources to the tune of $22bn annually.
“We allowed rogues in high places to mine and export billions to dollars’ worth of gold and other mineral resources out of Nigeria, which they never repatriate the proceeds back home. A major chunk of the insecurity we have today, especially, in the North is tied to these nefarious games.
“What is the FGN doing to set things right in that area and stop the insecurity via restructuring and devolution of our national security architecture?
“As at today, we have potentials to produce and export over $100bn worth of agro commodities annually, but we are not exporting enough.
“We can stop the outflow of over $1.5bn we spend on dairy products and $2.4bn we spend on health tourism…Our President is in France burning the scarce dollar resources in this area …He could not build one world class hospital in Lagos after 25 years of power control there
“What is Tinubu doing to recover the estimated loot of over $100bn in the hands of the bandits, who ruled Nigeria from 2015 to 2023?
“Emefiele is just one out of hundreds of people, including Buhari that should be answering questions and returning loots
“Obasanjo did similar thing to the Abachas. It will help to shore up the supply side of the dollar.
“Our insecurity, fragility and lack of faith in the institutions of the state and Nigerias current leadership have made others to stop bringing in money into the country hence where we are.
“We have a dollar supply problem and not even an exchange rate problem.
Ijede further said the dollar supply problem Nigeria is facing is borne out of the listed challenges and deformities above.
“To fix it , we need to totally overhaul the whole constitutional, fiscal, governance, Socio-economic, political, resources production and control architecture of Nigeria back to the 1963 framework”.
