Nigeria lacks strategy for monetary policy

Speaking concerning Nigeria’s fiscal policy, the Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane admitted that the country is currently running an unproductive methodology.

He mentioned this at a round table put together by ‘Business Eye’ in Lagos, also predicting that the currency depreciation might endure for a while.

According to him, “When you are in this kind of situation, you must spend your way out of it. The fiscal strategy is intact; what is missing is the monetary policy strategy to reinforce the fiscal strategy.”

“Your exchange rate policy when your price of oil was $114 cannot be the same exchange rate policy when the price falls to $30. We had money, we squandered it; we had opportunity, we gave it up.”

Concerning the impact of the $30 per barrel oil price, he explained, “In 2014, the price of oil was $116 per barrel and the cost of production was $25 per barrel. The yield on every barrel was $91. Cost of production per barrel is still $25, the price is $30. So the yield has gone from $91 to $5 per barrel. That is the magnitude of the problem.

“In 2008, we suffered for nine months only and oil price bounced back. But average price of oil in 2009 was $61.9 per barrel; 2016, the average price is projected at $45. External reserves in 2009 were $53bn; gross external reserves today are $28bn. The exchange rate in 2009 was 150 BDC, official 154. Today, BDC is 300, official is 199. Excess crude account was $22bn in 2009; it is $2bn today. Total external debt in 2009 was $10.4bn; total external debt today is $17.1bn.”

To prevent a further decline of the national currency, a lasting strategy has to be introduced by Nigeria's financial institution.