In his presentation before the lawmakers, the Minister of Budget and National Planning, Senator Atiku Bagudu said: ‘’The ministry has a mandate for budget and national planning. We are tasked with ensuring how best the fundamental objective of state policy can target and achieve the goal of optimal development.
The governor of the Central Bank of Nigeria, CBN, Mr. Yemi Cardoso, yesterday told members of the House of Representatives, that the task of stabilising the naira is the responsibility of all Nigerians.
He spoke in Abuja while addressing the lawmakers to explain issues responsible for the foreign exchange challenges facing the nation.
Cardoso’s presentation came as the Minister of Finance & Coordinating Minister of the Economy, Wale Edun, said the country was on the road to economic disaster before May 29, 2023, enthusing, however, that the economy was finally taking shape.
This is even as the Executive Chairman of Federal Inland Revenue Service, FIRS, Zacch Adedeji, assured Nigerians that the Federal Government had no plans to increase tax to avoid putting more burden on the people.
Meanwhile, renowned economist, Bismarck Rewane, has declared that the naira, is undergoing transition and not jinxed as being speculated in some quarters, noting that low foreign exchange inflow and lack of confidence in the local currency was responsible for naira’s free fall.
The CBN boss told the legislators that although the apex bank had the official mandate to ensure a stable value of the naira, the dwindling foreign exchange earnings by the nation and the increasing demand for foreign exchange by Nigerians for imports, school fees, foreign travel must be addressed to have a stable foreign exchange market.
His words: “Permit me to say that the exchange rate is determined by the dynamics of supply and demand for a product or service. In essence, similar to the pricing of cows or cars, the value of the US Dollar in Nigeria is determined by the balance of US Dollars entering the country and the demand for US Dollars among Nigerians.
“Applying this demand and supply principle, let’s examine how the exchange rate has performed in recent years. The exchange rate in Nigeria has increased/depreciated due to the simultaneous occurrence of two factors: a decline in the supply of US Dollars coinciding with a surge in the demand for US Dollars.’’.
Cardoso revealed that imports requiring dollars amounted to $16.65 billion in 1980 but noted that “by 2014, the annual import expenditure had significantly surged to $67.05 billion, although it gradually decreased to $54.71 billion as of last year.
“Similarly, food imports escalated from $2.63 billion in 1980 to $14.84 billion in 2019.”
The CBN governor, who noted that the number of Nigerian students abroad had grown astronomically, said: “In the 1980s and 1990s, the need for US Dollars for their living expenses was minimal. However, recent data shows a significant change.
“According to UNESCO’s Institute of Statistics, the number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. By 2018, this figure had reached 96,702 students, as per the World Bank.
“Another report projects the number of Nigerian students studying abroad to exceed 100,000 by 2022.
“Continuing on the topic of the demand for US Dollars, Nigeria’s annual imports, which require dollars for payment, amounted to US$16.65 billion in 1980.
“From the aforementioned points, we can infer that the genuine issue impacting the exchange rate is the simultaneous decrease in the supply of, and increase in the demand for, US Dollars.
“It also seems that the task of stabilizing the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the bank itself and, indeed, to an attitudinal change of all our citizens.
Focus on price stability
Cardoso said his team remained committed to price stability and was determined to achieve that objective.
“My team and I are dedicated to refocusing the bank by giving primacy to price stability. We also aim to build confidence in the Nigerian economy through the maintenance of stability in consumer prices and the foreign exchange market.
“We are aware that the twin challenges of inflation and exchange rate depreciation on our economy are daunting. However, they are not insurmountable.
“Monetary policy actions are sometimes inhibited by transmission lags, nonetheless, it is expected that the policy measures implemented by the bank will permeate the economy in the short-to-medium term.
“We are committed to implementing policies that will ensure a stable macroeconomic environment and guarantee improved livelihoods for all Nigerians.”
Domestic Outlook
On the domestic outlook, Cardoso said the federal government anticipated a 3.76 per cent real GDP growth in 2024, slightly surpassing the estimated 3.75 per cent for 2023.
According to him, this optimism is backed by key government reforms and the expectation of improved crude oil prices and production, which are set to drive economic growth.
“Each sector may face unique challenges and opportunities in 2024. The services sector is expected to thrive due to increased digital lending offerings, while the agriculture sector is projected to grow faster with improved productivity. Anticipated growth in the industry sector is linked to increased crude oil production.
“Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, aiming to rein in inflation to 21.4 per cent, aided by improved agricultural productivity and easing global supply chain pressures.
‘’The CBN’s inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities.
“The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
“The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remunerable Standing Deposit Facility cap.
‘’Positive outcomes are emerging, recent reports from international rating agencies such as Moody, etc rate us from stable to positive. This is due to the reform efforts.
‘’For instance, the volume of transactions done at the stock exchange on Monday, February 5, 2023, is $ 844 million. This was at the close of work yesterday (Monday).