Dollar may hit 1000 naira mark by December
by Emeka Ezere
The record drop in the price of the Naira to N710/$1, with little or no chance of a correction anytime soon, has excited analysts that the local currency could go as low as N1000/$ if the dangerous trend continues unabated.
The naira has been on a free fall in recent weeks, falling to N430 per dollar in the official market, known as the investor and exporter forex window, and popularly past the N710/$ parallel market. The week is called the black market.
On Monday (July 25) the 670 crash from the Naira’s N670/$6.7% position worsening Nigeria’s inflation, which was last pegged at 18.6% by the Nigerian Bureau of Statistics (NBS), issued a variety of responses. has kept.
The last time the inflation rate in Nigeria touched the threshold of 18.6% was in January 2017, when it stood at 18.72%.
Several policies and measures by the Central Bank of Nigeria (CBN) to save the Naira from hitting the bottom in the forex market have not satisfactorily given the desired result.
According to the apex bank, all these and its many other initiatives were aimed at diversifying the economy, stimulating production, increasing foreign exchange inflows, maintaining the stability of the naira against other currencies and easing foreign exchange demand pressures. .
Some of the policies include RT200 FX Program, 100 for 100 Production and Productivity Policy, Naira4Dollar Scheme, Anchor Borrowers Program (ABP), Export Development Facility (EDF); and Non-Oil Export Promotion Facility (NESF).
Nigeria’s foreign reserves fell by 0.07% to $39.25 billion on Wednesday, July 27, 2022, as against $39.27 recorded on the previous day. Following the recent volatility in exchange rate markets, external reserves have dropped by $196.71 million in a week.
Critics partly attribute Naira’s examination to more printing of new notes since 2015 by the apex bank, which has been accused of mining more money to lend to the federal government.
They allege that the Ways and Means Advances, an arrangement through which the federal government can borrow from CBNs, has converted approximately N20 trillion into long-term (30-year) loans to the government.
Another factor that has been involved in Naira’s downfall is the import of fuel.
Oil’s airflow has served as a panacea for Nigeria’s liquidity crisis, but has been greatly undermined by the country’s lack of functioning refineries, which force the government to import refined petroleum products, earned Spends foreign currencies which should have boosted the country. Foreign exchange reserves and dollar liquidity.
However, CBN has stated that the non-remittance of dollars in foreign reserves by the Nigerian National Petroleum Corporation (NNPC) is responsible for the free fall of the naira in the official and parallel markets.
In a report titled “Foreign Exchange Questions in Nigeria: Fact Sheet” published on Thursday, the apex bank disclosed that “domestically, there have been zero dollar remittances by the NNPC to the country’s foreign reserves”, asserting that CBN does not print dollars.
According to the apex bank, Nigeria earns foreign exchange from four sources – income from oil exports; income from non-oil exports; Diaspora remittances, and foreign direct/portfolio investment (capital inflows).
NNPC and its subsidiaries are the sole managers of crude oil, which accounts for more than 80 percent of Nigeria’s foreign exchange (forex) earnings.
On Tuesday, a brief release from the Federation Account Allocation Committee (FAAC) showed that the Additional Crude Account (ECA) declined from $35.377 million in May to $376,655.09. ECA is supposed to be a savings buffer meant to stabilize the revenue of the government and act as a bailout for the economy in tough times.
The bank said: “Given Nigeria’s heavy reliance on oil exports for foreign exchange earnings and government revenue, the impact of the oil market crash severely impacted the government’s naira revenues and other macroeconomic aggregates including economic growth.
“Therefore, the rate of exchange between the naira and other currencies has increased over the years.”
On key facts about the economy, the apex bank said that CBN issues legal tender in Nigeria (Naira) and does not print foreign currency. It said that there are both local and global view of the pressure on Naira.
“There is a constant demand for foreign exchange for both goods and services, creating a demand challenge.
“The current exchange rate of the naira, like other major currencies, is not crypto-driven, given the volatility in the cryptocurrency space, which has lost over $2 trillion over the past two years due to high inflation,” it said.
For example, Nigerians spent $378.77 million on foreign education between January and May 2022, according to data obtained from CBN, based on the amount spent on educational service under Regional Use for Lawful Transactions for Foreign Exchange. calculated on.
Data from the top bank showed that Nigerians paid more than $378.77 to foreign educational institutions in five months without significant reciprocity as flows from foreign sources into the local education sector.
The huge net dollar outflow has the twin adverse effects of lower investment in domestic education and pressure on the Naira exchange rate.
Reacting to the situation, Uche Owaleke, a professor of capital markets, said that the current free fall of Naira can be addressed through CBN monetary policies.
“It is beyond CBN….It is about increasing productivity in the economy”, he said.
“We just have to find a way out of this swamp. There is no quick fix for this as of now.
Expressing his views, Francis Oguja, a financial market analyst, said: “How do you catch a big stone falling from the sky? The kind of situation we are in at the moment.
“What economic activity took place between Monday and today to effect the big drop in Naira price? So everything is very speculative and each announcement about a drop in price leads to a further drop in price, and it goes on. We are experts in self-destruction.
“It is already a terrible situation, so the best we can do is to manage the situation in the remaining few months. One should not expect any change from this regime, it has nothing to offer left; we don’t need to harm ourselves any more.”
One public affairs analyst, Felix Oprah, wondered why a country that is not at war would have its currency depreciating at such an alarming rate.
“The Naira is now $710 per dollar. Before December it will definitely be N1000. This is unprecedented. The only reason our currency has lost so much value is if we were at war.
“It is either the CBN governor doesn’t know what he is doing or he is deliberately sabotaging Naira.”
Business Hallmark, in its half-year economic review sent to the Center for the Protection of Public Enterprises (CPPE), noted that many businesses have faced severe dislocations as a result of foreign exchange liquidity challenges, volatility and currency depreciation. .
According to CPPE, this has severely affected businesses across all sectors of the economy, with the cost of operation and production rising between 30-100% as a result of the exchange rate crisis.
The document, signed by the centre’s founder, Dr. Muda Yusuf, read in part: “The challenges of accessing raw materials due to the lack of foreign exchange have led to a significant decline in production in many industries.
“Many players in the economy now resort to parallel market protection at a very prohibitive cost, as little access to the official window exists.
“The sharp depreciation of the exchange rate in the parallel market which is more than 300% has spoiled the profitability of the investment. The ability to retain jobs and create new jobs has been put at great risk due to the foreign exchange crisis.
“The failed foreign exchange policy has negatively impacted foreign direct investment, foreign portfolio investment as well as other capital flows into the country.
“Various exchange rates, and huge parallel market premiums in the foreign exchange market are major downside risks to investment growth and the attraction of foreign capital to the economy. This has continued to undermine the supply side of the forex market.
“The inability of foreign investors to return their profits and dividends as well as income has created considerable perception, reputation and country risk issues for the Nigerian economy. All these have led to a sharp decline in capital imports in recent years. are responsible.
Meanwhile, the Labor Party’s presidential candidate, Mr. Peter Obi, has urged the government and Nigerians to stop using foreign currencies such as the US dollar for local transactions.
Obi, who gave the exhortation in a tweet posted recently where he said Nigeria’s confidence in the national currency needed to be restored, said economic hardship and financial pressures have brought the naira down.
“Distortions in the economy and fiscal policies have led to Naira’s instability. The falling exchange rate is worrying.”
He said Nigeria should stop using foreign currency to pay for domestic activities and contracts.
“Fiscal managers should come up with a policy line or method to arrest price drift and restore confidence in the national currency. Also, domestic transactions and contracts in foreign currency should be closed immediately.”
However, CBN has assured that it will continue to make deliberate efforts in the forex sector to prevent further decline in the value of Naira, which was driven by speculative tendencies.
Mr Osita Navanisobi, Director, Corporate Communications at CBN, who made the assurance in a statement on Friday, advised the public to resist the urge to succumb to the speculative activities of some players in the forex market.
Reiterating the earlier post of the Governor of CBN, Mr. Godwin Amphile, he urged Nigerians to play their part by adjusting their consumption patterns, looking inward and finding innovative solutions to the challenges of the country.
Presenting that monetary policy alone cannot bear all the burden of adjustments required to manage the challenges surrounding Nigeria’s foreign exchange, Nwanisobi cautioned that “as Nigerians it is our collective duty to ensure that the Naira’s exchange rate is balanced. shore up the value.”