THE steady depreciation of the naira is raising fresh concerns on the state of the economy. It has also re-opened the debate over the desirability or otherwise of devaluation of the currency, to halt its crashing value. These worries are mounting as the naira depreciated last week to N385 to one US dollar at the unofficial or parallel market, popularly known as the black market.
The naira, in the last one week, depreciated by over 20 percent to the dollar, a clear warning signal that something very urgently needs to be done to halt its steady drift. While the naira exchanged for N370 to the dollar on February 17, it had exchanged for N347 a week earlier. This is even as the official rate remains N197.50 to the dollar. The latest pressure has been attributed to speculations that the Central Bank of Nigeria (CBN) will soon include overseas’ school fees and medical bills in the prohibition list.
This has heightened calls for the CBN to further devalue the naira, sixteen months after it trod that path. In November 2014, the CBN devalued the naira to N168, from N155 to the dollar. The proponents of devaluation believe the apex bank has not done enough to reduce the pressure on the currency by relaxing foreign exchange controls and addressing President Muhammadu Buhari’s conviction that devaluation would not improve the dollar supply in the economy.
We are not unaware of the different positions of stakeholders on the ongoing free fall of the naira. In fact, a number of reasons have been adduced for the steady depreciation. While some blame speculators, others attribute it to the high demand for foreign exchange against demand, and most importantly, the falling oil prices in the international market and its consequent pressure on the external reserve.
It is in the light of these developments that the campaign for the devaluation of the naira is on the front burner of national discourse. Given the low foreign exchange receipts of the Federal Government from crude oil in recent times, the campaign for devaluation has been resisted by the monetary and fiscal authorities. The main argument of the government and the CBN is that previous devaluations under the same economic conditions did not improve the fortunes of the naira.
President Buhari has maintained that he is opposed to the devaluation of the currency, whatever the short-term merits might be. Only recently, he accused some top officials of CBN of the same fraudulent acts perpetrated by some Bureaux de Change (BDC) operators. He disclosed that the government decided to stop the sale of forex to the BDC because it discovered that some directors of CBN own many of them and they sell most of the nation’s forex to these firms, only to give the government whatever is left.
On its part, the CBN has in the last one year issued a number of monetary regulations in response to increasing business activities and forex demands that have put constant pressure on the naira.
It has become necessary for the government to do all it can to preserve the nation’s external reserve. It must do rev up domestic production and encourage exports to make the country less import-dependent.
We recall that last year, the apex bank banned the importation of 41 items from the official forex market. These measures have, however, not stopped the depreciation of the naira, meaning that much more needs to be done. Meanwhile, Nigeria’s external reserve currently stands at $27.81 billion, down from $28.95 billion in January. From all indications, CBN’s Monetary Policy has not yielded the desired stability in the value of the naira against other major currencies.
The greater worry is that if measures are not put in place to stop further depreciation of our currency, the much-expected expansion of the economy will be hampered. Undoubtedly, the free fall of the naira has put the country and government’s economic planners in a dilemma. As long as oil prices continue to fall, forex will continue to be scarce and the demand for it will remain high, notwithstanding whatever measures CBN might put in place.
We, therefore, call for a thorough evaluation of all the options available for us to save the national currency, including monetary and fiscal measures. Devaluation should be the last resort in view of its obvious shortcomings, such as high level of inflation, increase in the cost of living and the weakening of the purchasing power of Nigerians, many of whom are already hard-hit by the state of the economy. Even though devaluation could be used to reduce the current pressure on forex and to encourage capital inflow, it could stifle industries that are already facing hard times, and may lead to job losses.
Over all, we advise the president to raise a strong economic team that will address all issues responsible for the steady depreciation of the naira, and chart the way forward. While this is being done, government should fast-track its diversification efforts and lead the economy away from the present over-dependence on oil. Local industries should be given more impetus to produce for exports and local consumption.
These dire times call for all hands on deck. A stronger naira will boost the economy and increase the purchasing power of Nigerians. Every effort should be made to bridge the gap between the official rate of the dollar and the parallel market rate. The supply side of the market should be addressed.