The Minister of Finance and National Planning, Zainab Ahmed, says the latest policy by the Central Bank of Nigeria (CBN) is pushing the naira towards a unified exchange rate.
The minister, who spoke at the interactive session on the Medium Term Expenditure Framework (MTEF), organised by the House of Representatives Committee on Finance in Abuja, said the policy would end the multiple exchange rates that have bedevilled the country.
She, however, admitted that the policy has further compounded the problem in the Nigerian capital market.
She noted that foreign investors are still avoiding the capital market due to the policies.
PREMIUM TIMES had reported that the CBN devalued the naira in May, by adopting the Nafex rate as the government’s official exchange rate for the naira.
The policy effectively devalued the currency by 7.6 per cent. The rate had moved from between N379 and N410 to a dollar.
While speaking before the lawmakers, Mrs Ahmed said the policy is moving the naira towards a unified FX rate.
“We have not seen the return of foreign investors Nigerian capital market. The situation is further compounded by the devaluation of naira by the Central Bank of Nigeria.
“However, the naira is moving towards unified exchange rate.”
Speaking on the volatile nature of the naira, the CBN’s Deputy Governor, Corporate Service Department, Edward Adamu, said the outbreak of the COVID-19 and slow recovery of the oil sector are the main factors responsible for the state of the naira.
Mr Adamu said Nigerians in the diaspora have been unable to return to the rate of remittances at the pre-COVID-19 era.
“Crude oil sale has not been as high as we all want it to be and obviously in the aftermath of COVID-19, the global economy grounded to a halt and the use of crude oil also was a halt.
“To the extent that sometimes in April last year, we had crude oil selling at a negative money which means that, people were being paid to store what they bought and so that avenue for forex inflows was significantly reduced.
“You go on to foreign portfolio inflows, you notice that investors also settle their affairs on the side of caution and so once COVID-19 outbreak occurred, they moved out about 120 billion dollars from emerging market to the safe haven in America and Nigeria is one of those countries the monies were withdrawn from.
“On the remittances side, once our brothers and sisters abroad were not working because of the situation they found themselves; they had very little to send to us here and so we also saw remittances reduced.
“On the demand side, we saw speculative demand on the sides of Nigerians, if you needed a truck of goods, because you are not sure of the uncertainties of COVID, you wanted to get three trucks.
“All these pressures on both the demand and supply side, the availability of dollar became more difficult and we had decline or depreciation in the value of the naira,’’ he said.
The deputy chairman of the committee, Abdullahi Saidu (APC, Niger) also raised concerns on the impact of CBN’s interventions in the agricultural sector.
The lawmaker said the CBN should focus more on the provision of infrastructure that will help in the production of food.
In response, Mr Adamu said that the high food inflation should be blamed on the outbreak of COVID-19 and insecurity across the country.
On the latest policy on Bureau De-Changes, Mr Adamu said the apex bank was injecting $500 million monthly to the parallel market.
It would be recalled that the CBN had rolled back the policy of injecting FX into the BDC.
“On the BDCs the CBN governor did announce and explained our thought process, that when these entities were created they were supposed to service retail end-users of not more than $5000 or less but that’s not what we’ve found. Instead we have found avenues for arbitrage and somewhat nefarious activities. And if you think about the fact that we had 6,000 BDCs, the amount of resources we gave to them monthly amounted to slightly less than $500 million a month.
“And we felt that it is much better for the economy and not for a segment to redirect those funds to the I & E window that accommodate much more of the FX market.”
Despite the claim by the apex bank, the policies have caused some uncertainty in the FX market that resulted in naira trading against the dollar historic at low point.
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