Financial analysts react to the decreasing value of the naira
Henry Boyo
The Central Bank of Nigeria should be blamed. But you cannot blame the servant without also blaming the master. The Central Bank Act gives the CBN much autonomy. But the autonomy is not supposed to destroy but build. You cannot apportion blame to the CBN governor without also blaming the oga.
The truth is that if we have to criticise Emefiele, we have to criticise Soludo and Sanusi for continuously auctioning the dollar against the naira. Once you keep auctioning the dollar in a market that is already suffocated with the naira, you have predestined the depreciation of the naira. You don’t have to go to school to know that if you have more naira in the market and you are auctioning dollars, the local market will fall sharply. If the Central Bank, therefore, continues to auction dollar and journalists, economists and others cannot say my friend, don’t deceive us’ the problem will continue.
How can the CBN, from a monopolistic point of view, because it supplies over 80 per cent of dollar in the market, continue to auction it? It is indirectly devaluing the naira. This is what all the successive CBN governors have done. So, they are part of the problem. Don’t we understand auction? If the Central Bank, the custodian of the dollar, is busy auctioning it in the market for 20 years or more, what did they expect? Now, they are still doing it, and they expect the naira to appreciate. It is not possible.
It is not the foreign exchange we earn that makes the naira falls. If it were, at the time we had $60bn in reserve, did the naira appreciate reasonably? Why don’t the journalists tell them the truth? You have a history on our side to back up your claim.
It is not Emefiele that should be blamed but the system he operates. One can rightly say that he should be courageous enough to stop it. Why didn’t Sanusi and Soludo have the courage to stop it? So, it is not a one-man thing. Instead of blaming Emefiele, I would rather say the buck stops at the President’s table.
- Johnson Chukwu
The value of a country’s currency is a function of several factors (such as the strength of the local economy), which determine the flow of foreign exchange, Nigeria’s export earnings and the policy choices of the country’s economic managers.
While the strength of the economy and the country’s foreign exchange earnings are attributed to the cumulative effect of policies of various past administrations, the current economic policy choices are clearly the responsibilities of monetary and fiscal authorities. The loss of value by the naira was largely triggered by the decline in the country’s foreign exchange earnings due to the drop in crude oil prices.
The decision by the monetary authority to hold the exchange rate at an artificially overvalued rate for more than one year after the foreign exchange earnings had declined contributed to the fall of the value of the naira as it kept away alternative sources of inflow such as portfolio investors, home remittances and non-oil exports.
The position of the President on devaluation and failure by the fiscal authority to put in place a fiscal plan in the first half of the year also contributed to increasing the level of uncertainty.
In effect the past administrations, the CBN and the Presidency contributed, in some measures, to the current state of the naira.
- Dr. Ken Ife
If it is about apportioning blame, everybody deserves one. It is only politicians that make a bracket statement and only judges can pass judgement. Professionals analyse the facts and allow people to draw conclusion. Now, there are four key factors at play.
Lack of consultation and a reasonable degree of failure on the part of the Central Bank is one of them. There is also interference from the top, with the key officials saying they are not going to devalue the currency. As a result of this, things are getting out of control. The third issue is that we are just reacting to global dynamics. One is the decision of the Federal Reserve to end quantitative easing. Another is the collapse of oil prices at the global market. Added to the second issue is the escalating militancy that has stopped us from meeting our quota.
The fourth, which is very important, is the failure of fiscal policy. Fiscal policy has failed to complement monetary policy in attracting direct foreign investments. Also, it has failed to support export expansion. Fiscal policy should support industrial policies to boost local production. There are several areas where this policy has failed to complement the monetary policy. These are areas that show who to blame. You cannot attribute the problem to one person.
- Bode Ashogbon
We cannot exonerate either of them. There has been no agreement between fiscal and monetary policies. That is why I can’t exonerate either President Buhari or Emefiele. Maybe, the CBN governor was not bold enough or he did not have sufficient information to confront Buhari on why the flexible exchange regime should have come on board much earlier. If that had happened, the naira, perhaps, would not have been where it is today.
Also, the President would have to look at some of the economic policies. The majority of foreign investors are skeptical about the market; they have a high level of uncertainty. That has shut down substantial inflows expected. The CBN cannot fund the huge demands, hence the naira has continued to fall. There should have been a massive campaign for the use of made-in-Nigeria goods. But this has not happened.
I will blame the President more than the CBN for the challenge. But we wondered why the CBN could not convince the President. The President is not an economist and you can understand his position when he said he would not want the naira to be devalued. But the job of the CBN governor is to convince the President. But Emefiele couldn’t do that, hence he should also be blamed.
- Jide Akintunde
The biggest challenge to the floating exchange rate that the Central Bank newly introduced is the delay in its adoption. To a large extent, President Buhari was responsible for the delay, as he dominated the debate on devaluation of the naira. However, the CBN cannot be completely exonerated, since it defended the pegged regime, which was clearly unsustainable in the light of the low oil prices. We cannot accept a CBN that accepts the erosion of its independence, precisely because it imposes risks on the market and the people.
Perhaps, this is a point of sympathy with the CBN. Any central bank that is not allowed to independently determine its policies would hardly be able to achieve its mandates. I suppose that is why we have seen the wide gulf between the CBN’s inflation target of single digit and the current 15.6 per cent.
The damage that the now abandoned naira peg to the dollar at N199 has caused is enormous, even if it is not directly determinable. It surely contributed to negative sentiments that saw huge losses on the Nigerian Stock Exchange and a sharp reduction in foreign direct investment flows into the country. Speculative behaviour in the forex market, buoyed by an unsustainable exchange, weakened the naira and influenced the rise in inflation.
Because of the damage that has occurred, the new forex policy will not immediately solve issues of key economic conundrums, including high inflation, prohibitive interest rates, with all the consequences on productivity and welfare of the people.
- Shola Eshiobo
The nature of the economy itself is responsible for the fall of the naira because the value of a currency is a function of the performance of the domestic economy. The challenge is the huge gap between demand and supply of dollar. The gap has been widened by low earnings from oil exports. Meanwhile, we have continued the huge consumption of imported commodities. We have a situation where demand is stagnant or rising, while supply has fallen.
Are there malpractices and operational errors that might have escalated the problem? Yes, there are. Most of such malpractices come in the form of corruption. The disbursement of dollar is not well managed. The scarce foreign exchange is still used to import items that could have been produced locally. The CBN takes responsibility for this.
Refined oil products constitute the biggest threat to the value of the naira. And not until local refineries come on board, this will likely continue.
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