The year-long decline in
the price of hydrocarbon, the country’s main foreign exchange earner, has told
grievously on the value of the naira and the overall health of the economy.
With a depleting foreign reserve, a rising debt profile and over-dependence on
imports, the alarm bells are deafening and the government’s response so far has
been one of desperation through administrative control of foreign currency
inflow and outflow. The watchdogs of global financial health, namely, the International Monetary Fund (IMF) and
the World Bank, are worried and have
discountenanced Nigeria’s response to the situation. JP Morgan has moved to
degrade government bond while the IMF is calling for further devaluation of an
already weak currency.
The above conditions have
remained of concern to domestic investors. Little wonder then that the naira
came under scrutiny at the just concluded 2015 IMF/World Bank meeting in Lima,
Peru where the IMF urged the country’s financial authorities to further devalue
the currency. This viewpoint was expressed by the Director of African
Department of IMF, Antoinette Sayeh,
who contended that the Central Bank of Nigeria’s administrative measures to
limit access to foreign exchange were detrimental to the health of the national
economy and unsustainable. This view, though important, is not new and is now
being echoed by many so-called Nigerian financial experts.
It would be recalled that
the naira was devalued officially by 28 per cent from N155 to a dollar in
November last year to about N197 in the first quarter. Since then it has fallen
further. The IMF had in its April 2015 Regional Economic Outlook for
Sub-Saharan Africa predicted an economic growth of 4.5 per cent for the region
but said fiscal adjustment through devaluation should be a priority for policy
makers. From the foremost global financial institution whose mandate is to
among other things promote exchange rate stability and deal with balance of
payments adjustment, this is not surprising. However, these functions have not
been exercised disinterestedly in ways that allow contexts to determine
responses to maladjustments within economic processes.
In the face of these
pressures from many powerful individuals and financial agencies, the Central Bank of Nigeria (CBN) and the
Presidency have restated their resolve to defend the naira from further
devaluation. President Muhammadu Buhari
and Vice President, Yemi Osinbajo,
have said that it would be unhealthy to devalue the naira and also made the
point that the CBN was providing ample foreign exchange to sectors of the
economy that are essential and productive.
The CBN deserves
commendation for the measures so far taken to control further devaluation of
the naira and the integrity of the currency must of necessity be defended.
Countries devalue their currencies for a number of reasons such as remedying
trade imbalances, usually to boost export by making its products less expensive
in ways that can become competitive on the global market and achieving an
economy of scale. Ironically, Nigeria’s main contribution to the global economy
presently is largely the export of hydrocarbon, denominated in the United
States dollar.
Nigeria devalued its
currency in the 1980s against the background of many imperatives, namely, a
huge debt profile and oil glut. These factors created fiscal stress for the
national economy and the country had to resort to borrowing for re-financing of
loans and capital projects, making the country vulnerable to the
conditionalities of international financial institutions. Despite adjustment
policies, the economy never really improved until the fortune of oil improved
in the last one and half decades.
Without any fear of
contradiction, it can be argued that Nigeria is not exactly where it was in the
1980s. For Nigeria, therefore, the export imperative does not exist as a
diversified economy remains a mirage.
The strength of currency is
determined by national reserves of hard currency and gold, its international
trade balance, its rate of inflation and interest rates and the overall
strength of the economy. These fundamentals would appear unfavourable to Nigeria
with a mono-product economy and its foreign reserve hovering around US$31.89
billion. What is needed first in this circumstance is actually depreciation
which the naira has already gone through.
Those against the current
monetary framework have argued that government cannot carry on trying to
maintain a fixed exchange rate, independent monetary policy and free movement
of capital. It must be open to a choice among the available policy options.
Others have equally
applauded the current position of government and praised the current regime of
restrictions in the foreign exchange market which discourages Nigerians from
wasting the scarce foreign exchange on frivolous items including those which
can be locally produced. Notwithstanding, there is no fixed solution to all
economic problems. A nation must be bold enough to think outside the box and
take innovative measures to address distortions brought about by corrupt
politicians other than market forces. And enough of the dictations from the
Bretton Woods institutions and their domestic mouthpieces.
Nigeria’s current monetary
framework is liberalised. It is not a fixed rate regime but a floating rate.
The underlying reason among others is to check speculative demands for foreign
exchange. Even at that, adopting a flexible rate regime whether of the Dutch
option (DAS) or the Inter Bank Foreign Exchange Market (IFEM) which Nigerian
economy managers have pursued since 1986, cannot bail Nigeria and other African
countries out of their economic predicament. This country must get its economic
fundamental right, engender productivity through diversification of the
national economy, restore transparency and accountability to public expenditure
and above all, promote self-reliance through creative exploitation of its abundant
natural resources. (guardian)
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