- The unification of the naira exchange rate would boost government revenue by a minimum of N4 trillion.
- The liberalization of the foreign exchange market would unlock the huge potential for investment, jobs, and capital flows.
- The new policy regime would be dynamic, and the naira will appreciate or depreciate depending on the fundamentals.
The Centre for the Promotion of Private Enterprise (CPPE) has said that the unification of the naira exchange rate would boost government revenue by a minimum of N4 trillion.
Dr. Muda Yusuf, Director/CEO of CPPE stated this while reacting to the step taken by the new administration to unify the exchange rate.
Nairametrics had reported that the Central Bank of Nigeria (CBN) has given commercial banks and dealers in the forex market the green light to sell forex freely which is at a market-determined rate.
This is in line with the promise of President Bola Tinubu to unify the multiple exchange rate in the market.
Yusuf said the revenue would be achieved through additional remittance of exchange rate surplus to the federation account by the Central Bank of Nigeria.
He welcomed the bold step taken by the Tinubu administration toward the unification of the naira exchange rate.
Yusuf added that the liberalization of the foreign exchange market would unlock the huge potential for investment, jobs, and capital flows. Investors’ confidence would be positively impacted.
- “Meanwhile, it should be clarified that this is not a devaluation policy, but a pricing mechanism that reflects the demand and supply fundamentals in the foreign exchange market.
It is a framework that allows for flexible rate adjustments as and when necessary.
- It is a model that is predictable, equitable, transparent, and sustainable.
- It is a policy regime that would reduce uncertainty and inspire the confidence of investors. It would minimize discretion and arbitrage in the foreign exchange allocation mechanism.
- Rate unification does not imply that rates will be the same in all segments of the market. The objective is to ensure that the differentials are very minimal, possibly between 5-10%,” he said
Benefits for the economy
According to Yusuf, a unified exchange rate regime offers the following benefits for the economy:
- “It enhances liquidity in the foreign exchange market. It reduces uncertainty in the foreign exchange market and therefore enhances the confidence of investors.
- It is more transparent as a mechanism for forex allocation. It minimizes discretion in the allocation of forex and reduces corruption vulnerabilities.
- It reduces opportunities for round-tripping and other sharp practices. It would increase disclosures concerning export proceeds and compliance with non-oil export declarations, especially the non-oil export documentation [NXP].
- It would boost government revenue by a minimum of N4 trillion through additional remittance of exchange rate surplus to the federation account by the CBN.
- The use of naira cards for limited international transactions would be restored in the short to medium term.
- It would facilitate the mopping up of naira liquidity in the economy in the short to medium term. This would impact positively the inflation outlook.
- It would deepen the autonomous foreign exchange market through the liberalization of inflows from Export Proceeds, Diaspora Remittances, Multinational oil companies, diplomatic missions, etc.,” he said.
Previous foreign exchange policy regime
Yusuf noted that the erstwhile foreign exchange policy regime on the other hand was, for all practical purposes, a fixed exchange rate regime.
He noted that it created the following distortions and negative outcomes:
- “Widening gap between the official, other multiple windows and parallel market exchange rates which created room forex roundtripping to flourish.
- The collapse of liquidity in the foreign exchange market resulted in acute forex scarcity.
- It fueled demand for forex because of the incredible rent opportunities created by the huge parallel market premium.
- Created a major disincentive for forex inflows into the economy, thus suppressing forex supply and mounting trade debts.
- Increasing factory closure as many manufacturers are not able to access foreign exchange for raw materials and other inputs.
- Many investors were not able to meet offshore obligations, creating credibility problems with their offshore suppliers, surging inflationary pressures, and a sharp drop in capital inflows”
Yusuf noted that it was important to reiterate that this is not a devaluation policy, it is a normalization of the foreign exchange policy regime and an adjustment of rate to reflect the fundamentals of demand and supply.
- “It would be dynamic, and the naira will appreciate or depreciate depending on the fundamentals.
- In the short term, we expect a depreciation of the currency in the official window because of the huge demand backlog. But as the market conditions normalize and move towards equilibrium, the rate would moderate.
- We also expect the new policy regime to boost inflows and strengthen the supply side amidst elevated investors’ confidence.
- The component of forex demand driven by arbitrage, rent seekers, speculators, and other economic parasites would also fizzle out, thus restoring stability to the forex market.
- However, the CBN should position itself for periodic intervention in the forex market, as and when necessary, to stabilize the exchange rate and prevent volatility. This should happen not by fixing rates, but by boosting supply to the extent that the reserves can support,” he said.
Government taking away 4 trillion Naira from the people will make them rich?
There’ll always be multiple exchange rates.
There have always been multiple exchange rates.
The government requires the services of technocrats like Muda Yusuff who has linkages with the real sector.of the economy. Those that can study the impact of policies are crucial at this point. I doubt if any working class Nigerian will be able to buy N10,000 meat to store and feed in the next 6omths. The pain is too much. Turkey is now N2500.per kilo in Yaba. That is if you are able to get. We have not electricity since five days now. Yet we pay bills. Haba, help to reduce this painpoint.