Why Nigeria chose stable exchange rate over building foreign reserves – Emefiele

Central Bank of Nigeria (CBN)
Central Bank of Nigeria (CBN)

The Central Bank of Nigeria (CBN) governor, Godwin Emefiele, says maintaining stable exchange rate to avoid depreciation of the Naira is better than building foreign reserve buffers.

Mr Emefiele told journalists on Sunday that this was part of the outcome of the Nigerian delegation’s meetings with investors and institutions at the International Monetary Fund (IMF) and World Bank Group (WBG) Annual Meetings in Bali.

He said that all frontiers and developing markets have suffered not just depreciation, but had also lost reserves.

“We are very conscious of the need to build buffers but unfortunately I must say that we are in the period where it will be difficult to talk about building reserve buffers.

“We can only build reserve buffers if we want to hold on to the reserve and then allow the currency to go, and wherever it goes is something else.

“So it is a choice we have to make and at this time the choice for Nigeria is to maintain a stable exchange rate so that businesses can plan and we do not create problems in the banking system assets.”

According to him, like other emerging markets nations, Nigeria has also lost reserves but only marginally because it had managed to sustain stability in its foreign exchange market.

The CBN governor said that the IMF and the World Bank advised that nations should build country specific policies and fiscal and structural reforms that would boost economic growth.

Zainab Ahmed, Minister of Finance, said the World Bank’s Human Capital Development Index (HCI) ranking, which placed Nigeria low at 44 per cent on stunting, was disheartening and depressing.

She, however, said that the federal government saw the rating as a wake-up call.

“We admit that this pervasive action was due to long years of under-investment in human capital, which we have before now realised and for which we have been addressing.

“Apart from major policy actions, some decisive actions are being taken to address the situation.”

According to her, the delegation held meetings with the two rating agencies-Fitch and Moody’s and presented to them the summary and synopsis of the recent economic and financial developments in Nigeria.

She added that it was an opportunity for the rating agencies to be able to objectively evaluate Nigeria’s credit.

Mrs Ahmed said she also met the IMF Managing Director, Christine Lagarde and discussed Nigeria’s economy in view of the 2019 general elections.

She assured Ms Lagarde that the election year would not pose any threat to the nation’s economic prospects.

Udoma Udo Udoma, Minister of Budget and National Planning, said that to improve HCI, the nation had improved budgetary allocation to health and education.

He said that allocation to education moved from N22.5 billion in 2015 to N102.9 billion in 2018.

He added that allocation to health was reviewed from N26.6 billion in 2015 to N86.49 billion in 2018.

He said also that N55.19 billion had been added to the health budget in 2018 through the National Health Act.

The News Agency of Nigeria (NAN) reports that the 2018 Annual Meetings of the IMF/WBG which began on October 8 ended on October 14.

(NAN)


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