The persistent decline of the Naira has increased the pressure being mounted on the Central Bank of Nigeria (CBN) to devalue the currency. In the face of a consistent drop of oil price in the international market and the restrictive forex policy employed by the CBN, experts have expressed an urgent need for devaluation.
The Managing Director and Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, argues this by stating that the recent restrictions put in place by the CBN has achieved the purpose, adding that it is ill-timed in the wake of shortage of foreign exchange.
He posits that, “The way forward to a sustainable exchange rate is to attract foreign investment. There is no country that can sustain a stable exchange rate if all you rely upon is what you earn from exports.”
“My big issue with the way the central bank has chosen to manage the Naira is that the it speaks about the reserves and exchange rate situation as if it is only about trading, and I think they get it wrong in that regard. It is not all about trading; capital flows matter.”
He views the restrictive policy as an omen which has mostly had a negative effect on the economy, amounting to a shortage in capital and a fear stigma among wealth holders who are now chiefly concerned about the dangers of possessing Naira valued assets.
“Countries that get comfortable reserves positions are countries that have regard for capital flow. They solicit and court capital flows and encourage people who bring their money into their jurisdiction to retain confidence in their ability to manage it. That is the neglected dimension in the face of the increased demand for forex; the CBN was announcing list of items that you cannot source official forex to import, and that is very wrong.”
Teriba adds that, “By the time you start telling people that they cannot use their debit cards abroad, do you think that is going to encourage them to hold more money in Naira? It is going to scare them to even flee the Naira the more.”
The Managing Director of the International Monetary Fund (IMF), Christine Lagarde on her visit to Nigeria last week noted that the aim of achieving external competitiveness requires an attractive plan which should include business friendly monetary, exchange rate and well organised fiscal policies.
She notes that “Additional exchange rate flexibility, both up and down, can help soften the impact of external shocks, make output and employment less volatile, and help build external reserves. It can also help avoid the need for costly foreign exchange restrictions, which should, in any case, remain temporary.”
Speaking further on the subject of devaluation, an economists at Capital Economics, John Ashbourne, mentioned to clients last Wednesday that Nigeria would be forced to devalue the Naira to around 240 per dollar in the first half of 2016, stating, “Cumbersome foreign exchange restrictions are strangling economic growth.”
Any attempt made by the CBN to close the gap between the parallel market and the interbank rates would require the apex bank to devalue the Naira by a minimum of 25 per cent.