CBN’s forex mishap leaves the Naira rolling downhill __EIU
Sopuruchi Onwuka
The hasty moves by the current administration of the federal government to dismantle all support instruments installed by the ousted Governor of the Central bank of Nigeria (CBN), Mr Godwin Emefiele, has pushed the Naira into a helpless plunge.
The Economic Intelligence Unit (EIU) which has released a report predicting the country’s political and economic future stated that the Naira could plunge uncontrollably over government’s poor management of the exchange rate. It explained that the CBN has so far displayed lack of dexterity in managing a floating forex regime.
The Oracle Today reports that pulling all the official pegs hitherto used by the CBN to support the Naira in the foreign exchange market has been criticized as part of the hasty blunders committed by President Bola Tinubu as he assumed office.
In an attempt to remove the artificial demarcation between the official and parallel exchange rates the new administration inadvertently pulled off all the artificial support instruments in the foreign exchange unification process that the Naira falling freely in the foreign exchange market.
The EIU predicted devaluation of the Naira to over N800 per dollar by next year and over N1000 per dollar beyond next year.
Acute shortage of the dollar weekend pushed the Naira further down to N776 per dollar at the official foreign exchange (FX) market, as turnover dropped by 38.89 per cent from $88.66 million on Thursday to $54.18 million on Friday.
It would be recalled that the previous government of former President Muhammadu Buhari had run a government of debts amidst poor remittances from the Nigerian National Petroleum Company (NNPC) Limited which manages government’s interests in oil and gas operations in the country.
Petroleum exports account for over 85 percent of Nigeria’s total foreign exchange receipts, and huge dollar denominated loans by the Buhari administration entailed huge debt services that further mounted pressure on the country foreign exchange income amidst poor remittances.
With weak forex income, the exchange rate unification measure taken by President Tinubu tuned out to be a huge mishap that left the value of the Naira rolling downhill and exacerbating already galloping inflation.
“The CBN lacks experience in conducting monetary policy under a float, and the need to control rapidly increasing inflation will become more acute over time. Our forecast is finely balanced, but we expect a return to heavier exchange-rate management from the second half of 2023 as the naira slides beyond N800:US$1 from N770:US$1 in early July,” the EIU rreported.
The report also highlighted the need for the government to revert to direct intervention in the market due to acute shortage of foreign currencies in the exchange market.
The research firm recommends strict financial control measures, tough measures against financial leakages, acute reduction foreign debts and rapid improvement in fresh forex revenue as the only pathway out of the prevailing mess.
