The Debt Management Office (DMO) has explained why receiving crude oil payments in Naira rather than in dollars is not a good idea for Nigeria.
Patience Oniha, the agency’s director-general, revealed this during a question-and-answer session at Covenant University in Ogun State on Thursday during the national budget roundtable and panel discussion.
The institution’s Centre for Economic Policy and Development Research (CEPDeR) hosted the budget roundtable, which was themed ‘National Budgeting for Economic Recovery and Sustainable Development in Nigeria’.
Backstory
- The move by Russian President Vladimir Putin to demand “unfriendly” countries pay in rubles for their natural gas has ignited a debate about Nigeria’s ability to do so and if it would be beneficial for the country.
- Financial sanctions against Russia, according to the International Monetary Fund, threaten to diminish the US dollar’s dominance over time, potentially leading to a more fragmented international monetary system.
- As a result, when a question regarding Nigeria accepting Naira as payment for oil was raised in the intellectual discussion, it was not out of place.The DMO, on the other hand, shot down the notion, citing credible reasons why such an approach would not be appropriate for Nigeria.
What the DMO boss is saying
Patience Oniha, director-general of the agency, explained that payment for Nigeria’s crude oil in Naira would translate to Nigeria’s external reserves and currency decline.
She said, “Nigeria has been dependent on external reserves, from which the Central Bank of Nigeria sells foreign exchange. So, if we say we should receive dollars in Naira, Nigeria’s external reserves and exchange rate are headed south, so it’s not such a great idea.”
She stated that, despite current crude oil prices being at record highs, Nigeria has been unable to fully benefit due to its failure to achieve output quotes, owing to bottlenecks such as crude oil theft.
She also stated that more work needs to be done in terms of currency rate availability, stability, and predictability and that foreign investors are more concerned with the predictability of the exchange rate than the actual rate.
She said, ”When it comes to FDIs, sometimes what they need is a predictable exchange rate so that they can conduct their feasibility assessment and determine whether the project is profitable.”
What you should know
- At the official Investors and Exporters (I&E) window, the naira and the US dollar exchange rate closed at N417/$1. Despite increased dollar availability in the market, the exchange rate in the I&E official forex market remained unchanged at N417/$1. On Wednesday, FX turnover surged by 50.56% to $147.41 million.
- On Thursday, the naira declined marginally against the US dollar, trading at a low of N585 to a dollar, down from N584/$1 in the previous trading session, or a 0.17% loss.
- Nigeria got $6.7 billion in capital inflows from foreign countries in 2021, a decrease of 31% from the $9.7 billion received the previous year. This is the lowest level of inflows since 2016.
- Nigeria’s foreign exchange reserve was $39.55 billion on March 30, 2022, a decrease from January 2022, when it was $40.04 billion. The fall in the country’s external reserves can be linked to the Central Bank’s ongoing involvement in the foreign exchange market to maintain currency stability.