According to the Lagos Chamber of Commerce and Industry, the Central Bank of Nigeria’s efforts to save the naira by implementing tightening measures are simply shifting forex transactions to third parties, putting more pressure on the currency exchange rate.
Ms Toki Mabogunje, President of the LCCI, stated this during the chamber’s ‘State of the Economy’ address on Tuesday.
She argued that the federal government should concentrate on non-interest asset-linked securities rather than debt because they provide long-term revenue and growth.
What LCCI is saying ?
She said, “It is however noted that whenever there is a free fall of naira exchange rate at the parallel market segment, as we are currently witnessing, the CBN applies demand containment and/or price control measures as seen from the 43 items ban and quest to peg the exchange rate of the Naira.
“Tightening measures have always failed to stabilise the exchange rate in Nigeria; it only redirects FX transactions to the underground arrangement, with unintended consequences of increased pressure on the exchange rate and creating wide premium between the official and parallel market exchange rate (N162 premium gap between I&E window rate of N412 (CBN) and the parallel market rate of N574 (EIU).”
Mabogunje went on to say that the forex market was still experiencing liquidity issues, and that many investors were unable to get foreign exchange for the importation of raw materials, equipment, and other vital inputs for manufacturing and processing.
The LCCI applauds the implementation of the Nigerian Autonomous Foreign Exchange Rate as the official exchange rate, according to her.
She said, “The unification is expected to improve the country’s currency management framework given that the multiple exchange rate systems had been creating uncertainty issues and sources of arbitrage.
“The development is expected to bolster the confidence of foreign investors in the economy. The move will also help the country to unlock external financing opportunities particularly from key multilateral institutions such as the World Bank and the IMF, who had for long advocated for a unified and flexible exchange rate system.”
She added that there was a need for the CBN to scale up its intervention efforts and roll out more friendly supply-side policies to boost liquidity in the market.
Mabogunje said the insecurity could worsen the 2021 fiscal deficit in the light of low revenue mobilisation. According to her, the insecurity situation in the nation has projected its economy as an unsafe destination for private and foreign investments.
She added that Nigeria’s economy grew by 2.7 per cent in the second quarter of 2021, at par with population growth, adding that Nigeria’s actual output was still below its pre-COVID-19 levels.
Speaking on the nation’s debt, Mabogunje said, “The rising cost and proportion of revenue used to service public debts, 98 per cent of revenue, according to the Presidential Economic Advisory Council based on the actual revenue generated in the first half of the year is creating fiscal distortions of significant proportions.
“The DG of the Debt Management Office stated that 43 per cent of revenue is budgeted to service debt, based on projected debt service and revenue for 2022.
“Since revenue fundamentals are currently weak, the ideal thing is to reduce the cost of borrowing, specifically, the high deficit and debt cost projected in the Mid Term Expenditure Framework (MTEF 2022-2024).”
She added that the Federal Government should focus on non-interest asset-linked securities other than debt as it unlocked revenue and growth in the long term.
Mabogunje said the FG should allow the private sector invest in some infrastructure projects that were commercially viable to generate incomes for repayment of funds expended.