Despite the warning of the World Bank and IMF, the Governor of the Central Bank of Nigeria (CBN) Mr Godwin Emefiele, has stated that Nigeria cannot freely float the Naira in the foreign exchange market.
He said in an interview, Thursday, on the sidelines of the ongoing IMF/World Bank Spring Meetings in Washington DC, United States of America, that such a policy would lead to a foreign exchange spiral for Nigerians.
The World Bank warned about import restrictions and the Central Bank of Nigeria’s foreign exchange policies are the main drivers of food inflation in Nigeria.
In February, The International Monetary Fund (IMF) also advised the CBN to unify the exchange rate by abandoning the official exchange rate in favour of the parallel market.
What the IMF and world bank are saying
The World Bank states that CBN forex policy is keeping the Naira strong in the I&E window. However, the value of the Naira remains weak in the black market.
“The current regime is keeping the official exchange rate of the naira artificially strong while the naira has weakened significantly on the parallel market. Additionally, the central bank has restricted importers’ access to foreign currency for 45 products and has reduced the supply to other importers,” the bank added.
IMF advised the CBN to unify the exchange rate by abandoning the official exchange rate in favour of the parallel market.
“Directors welcomed the removal of the official exchange rate and recommended further measures towards a unified and market-clearing exchange rate to help strengthen Nigeria’s external position, taking advantage of the current favourable conditions. They noted that exchange rate reforms should be accompanied by macroeconomic policies to contain inflation, structural reforms to improve transparency and governance, and clear communications regarding exchange rate policy,” it stated.
What the CBN is saying
His words, “What that means is that we cannot adopt a free-floating system. Doing that will create an exchange rate spiral for Nigerians as long as the demand surpasses the supply of FX in Nigeria.
He added, “We have been at this since 1986. That is why we are saying that whereas we are doing something to adjust the currency, for example between 2015 and now we have adjusted the rate from.N155 /$1 to N410 -420/$1.that it is today.
“So we cannot be accused of not adjusting the currency. We have to be given the time to ensure that while we are looking at the exchange rate, we have to do something about demand and supply.
“That means that the demand for FX will reduce and the currency will be better priced to meet the expectations of Nigerians.
” We restricted access to FX for rice. No more rice importation. Even maize. The importation of wheat has also reduced significantly.
“When Dangote Refinery begins operation towards the end of the year, it will end the demand for FX for the importation of petroleum products.
The demand for Petroleum products and some food items account for as much as 40 per cent.
When the Petroleum products and these food items are produced locally, the demand for FX will drop and we can apply the available FX to meet the demand. That way, we will achieve a stable exchange rate.”
