New Telegraph

CBN’s intervention and free fall of the naira

This is not a good time for the CBN neither is it a smiling time for Godwin Emefiele. Several people in the open space are calling for his head.

 

Those asking for his head to be placed on the chopping board acknowledged CBN’s interventions aimed at defending the naira but argue that they are not working, for if they were, the nation’s currency will not be on a free fall to the extent that in the black-market the naira has exchanged for N720 for a dollar and may peak at N1000 per 1 USD before the end of the year.

 

The free fall of the naira has pushed up inflation and worsened the economic hardship. Within the previous week, I spoke to people who said they have no confidence in the naira. They instead preferred to convert and save their money in dollars hoping to cash out when the naira would have peaked to N1000 and above as being predicted that it will be before the end of the year, except the CBN makes some adjustments in its intervention measures.

This is no rocket science because what-ever that is in place is subject to constant review especially where it seems not to be yielding desirable results. It is not only the people that are worried about the free fall of the naira; both the CBN and the National Assembly are equally concerned.

As part of its oversight functions and prior to adjourning on its annual recess, the Senate had resolved to summon the Governor of the Central Bank, Mr. Godwin Emefiele, to shed more light on the rapid depreciation of the value of the naira.

 

The exchange rate in the autonomous segment (BDCS) of the foreign exchange market has been between N670 – 720 to 1 United States Dollar and it is projected to end at N1000 by end of the year based on the current rate of depreciation. The Senate, therefore, mandated its Committee on Banking, Insurance and Other Financial Institutions to assess the impact of CBN intervention funds meant to support critical sectors of the economy.

 

The law makers noted that: “The CBN through its numerous multi-sectoral intervention funds provided special funds to support critical sectors of the economy. The persistent free-fall of the naira is an indication that none of the interventions being applied by the monetary authorities has worked. Otherwise, there would have been some respite for the beleaguered currency.”

According to Chukwuemeka Iheonunekwu, Founder/Head of Probusiness Consults, he said the free fall of the naira is a hydra-headed monster that requires diverse and intensive intervention. Nigerians are anxious, especially over the mounting hardship triggered by the naira’s collapse.

The naira’s predicament is like an ailment that wants to kill the victim because, sadly enough, the root of the problem is overlooked while interventions are being applied. The law makers cited the CBN’s decision to halt foreign exchange biddings by the BDCS and the insistence of the Apex Bank to only recognise the Import and Export rate as the only recognised rate.

 

The law makers frown at these twin decisions. For instance, the import and export window meant to serve the forex needs of business giants, has become a rare opportunity that only a privileged few can access, and thus putting pressure on the demand and supply of the dollar.

While the Senate calls for adjustment in the current measures is the right call, what it failed to put into consideration are the root causes of the depreciation crisis. The CBN is no magician. The monetary policies of the bank are not miracle policies and may not achieve the desired objectives except where they are backed by appropriate fiscal policies and commensurate fiscal responsibilities. For instance, our economy is oil and gas dependent.

Our foreign exchange earnings are dependent on the revenues accrued from oil sales. NNPC since 2021 has been reporting zero profit and as such has remitted zero dollars to the Federation Account. Whatever the gains made by the oil company were wiped out because it pays workers of three redundant refineries billions of naira every month.

Because the refineries are moribund, NNPC expend billions of dollars in the importation of petroleum products and pays trillions in oil subsidies. The question should be, “why are the refineries not functional? Why are we still importing fuel?”

 

People also speak of our economy not being productive and that’s true but they conveniently forget that our education system wasn’t designed to produce graduates that will fit into a productive economy, and that a productive economy is not something we can achieve overnight but an inevitable process that must commence now. Let the change begin with us. That will be a good start as only all hands must be on deck. Nigerians will think Nigeria if the leaders will think Nigeria.

 

In Anambra today, most government appointees are wearing ‘Akwete’ Cloths and using Made in Anambra Cars because the governor is leading by example. Prof Soludo has demonstrated in practical terms how we can reduce pressure on the naira. Incidentally, he was once the CBN governor. Not that I have anything against lawmakers bashing the CBN governor.

 

Their arguments are not out of place even where they are beyond economics. There are some positives and drawbacks to the arguments. We need such regular interaction to get the right monetary policy backed by appropriate fiscal authority and responsibility. I am nevertheless concerned that law makers may not be leading by example. When they need medical care, they go overseas for treatment.

 

When they want quality education for their children, they send them to foreign schools where the fees are denominated in dollars.

 

If the executive arm and legislative arm will make the decision to reduce their consumption to local products that will help rejuvenate the naira. I recall that a few years ago the Federal Government took the unpopular decision to shut down our borders against foreign rice. The move despite its own drawbacks eventually paid off.

 

The border closure enhanced our food security and sufficiency. The CBN intervened with the Anchor Borrowers fund which boosted food production. If not for insecurity in some parts of the North East and North West, the success rate recorded in food production would have been much higher.

Since, we are aware that NNPC is reporting zero profits and our economy is dependent on the dollar remitted from oil sales to the Federation Account. Can we do something about the refineries and take brave actions against oil theft? We scrap or privatize the refineries.

 

Scraping the refineries would at least save us funds used in paying salaries of workers that cannot justify their monthly pay. It can also save money used in paying for Turn Around Maintenance for refineries that never got turned around.

 

Privatization may on the other hand boost refined oil production, create jobs and reduce demand for dollar-based importation. On the other hand, in the face of rising demand for foreign exchange for both goods and services by Nigerians, the Central Bank of Nigeria (CBN) has advised Nigerians to resist the urge of succumbing to the speculative activities of some players in the foreign exchange market.

 

While admitting that there was huge demand pressure for foreign exchange to meet the needs of manufacturers as well as those for the payment of tuition, medical fees and other invisibles, Nwanisobi said the Bank was concerned about the international value of the naira, in the face of dwindling inflows from the oil sector.

Specifically, he noted that recent initiatives undertaken by the Bank such as the RT200 FX Programme and the Naira4Dollar rebate scheme had helped to increase foreign exchange inflow to the country.

According to him, the Bank’s records showed that foreign exchange inflow through the RT200 FX Programme in the first and second quarters of 2022 increased significantly to about US$600 million as at June 2022. Similarly, he disclosed that the Naira4Dollar incentive also increased the volume of Diaspora remittances during the first half of the year.

 

Continuing, he said interventions such as 100 for 100 Policy on Production and Productivity, Anchor Borrowers’ Programme (ABP) and the Non-Oil Export Stimulation Facility (NESF), among others, were also geared towards diversifying the economy, enhancing inflow of foreign exchange, stimulating production and reducing foreign exchange demand pressure.

 

He submitted that Monetary policy alone could not bear all the burden of the expected adjustments needed to manage the challenges around Nigeria’s foreign exchange

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