• ‘Timing coincidental, nothing to do with IMF, World Bank’
• Economists advocate currency, lifestyle audit
• Moghalu, Sanusi, others disagree on exchange rate unification
The country’s fiscal state faces tougher times as the Central Bank of Nigeria (CBN) bowed to pressure, last week, and further devalued the local currency.
The adjustment of the exchange rate at the busiest window is coming three months after the local currency was similarly devalued by 24.6 per cent, a decision that has worsened the inflationary pressure and interest rate.
Bloomberg reported at the weekend that the CBN raised the rate at the Secondary Market Intervention Sales (SMIS) – a window where importers access foreign currencies – from N360/$1 to N380/$1 with an instruction to bidders to comply accordingly.
The directive came less than two weeks after CBN Governor Godwin Emefiele hinted that the apex bank was moving towards ending the multiple-rate regime.
As at press time, it was not clear whether the latest adjustment would mark the commencement of the planned rate harmonisation. Efforts to confirm this and the validity of the directive, which is yet to be officially announced, failed as the CBN spokesperson, Isaac Okorafor, did not pick his call or reply to text messages.
But one of the CBN Governor’s advisers, who didn’t want to be named, told The Guardian: “It is not true that we came under pressure or that it was a condition by the two institutions, though they have been wanting us to unify our exchange rate regimes.
“Remember that in 2017, we needed a loan from them. They insisted and we told them no and we went for Euro bond. We could still have gone elsewhere if we were not desirous of adjusting our rate, which is our core strategic action undertaken from time to time, depending on the economic realities.
“So, we did it at this time and it just merely coincided with the time we are seeking assistance from them. Please, ignore such insinuations. The adjustment here had nothing to do with IMF. After all, IMF has already released its own funds to us. So, it has nothing to do with either the IMF or the World Bank or their assistance.”
The harmonisation, however, is a subject of debate among market operators and economists. Former CBN Governor Sanusi Lamido Sanusi raised the alarm that its implementation would fuel speculation and worsen the fortune of the naira. But Kingsley Moghalu, a professor of International Business and public policy at the Tufts University Fletcher School of Law and Diplomacy, United States, said “rate unification” would provide the “level playing field” required for inclusive growth.
Moghalu, who had earlier said the country could not continue to ignore the need to devalue the naira, was Sanusi’s Deputy in charge of Financial Stability. Both led the Central Bank, managing the highly sensitive foreign exchange market for five years.
Moghalu would not comment on how the rate unification would address currency profiteering and black market dealing – the twin troubles dictating the historical woes of the naira since the implementation of the Structural Adjustment Programme (SAP) in the 1980s.
Also, Tope Fasua, Development Economist and Chief Executive of Global Analytics Consulting, said the adjustment was voluntary. He noted: “The market has always asked for the elimination of parallel and discriminatory prices. As utopian as that sounds in our context, it is an ideal position to aspire to. The CBN is methodically pursuing how it can achieve a more streamlined market and escape the usual blame and opprobrium from believers of a perfect market.
“I believe it is an indication of a weaker, less subsidised naira for the immediate and near future, a reality which supports the general weakness of the economy in the face of several buffers such as COVID-19 and general economic slowdown.
“The move will give the naira some stability in the immediate term. But the CBN should be wary of the activity of speculators. The Bank’s strategy must be dynamic, so that the naira does not spiral.”