By Bamidele Ogunwusi
…Only Enough FX Supply Will Make Unification Likely — Analysts
…Want Exports, Foreign Reserves, Importing Oil Products Addressed
It has been observed that for Nigeria to attempt a unification of exchange rates, it must address the fundamental issue of foreign exchange availability and any attempt to unify the rates at this time will spell doom for the economy.
That was the consensus of opinion of analysts, who spoke to Daily Independent at the weekend in their reactions to the call by President Bola Ahmed Tinubu for the unification of exchange rates in the foreign exchange market.
They argued that it is only when fundamentals of the economy like improved productivity, increased exportation, growth in external reserves, improved foreign exchange earnings through the non-oil sector and end to importation of petroleum products are pursued and attained that the country may be positioned to unify exchange rates.
They told President Tinubu that any attempt to unify exchange rates in the country will crash the economy if these fundamental issues were not addressed.
In a significant policy shift, President Tinubu in his inaugural speech, declared his government’s decision to unify the exchange rates, replacing the previous multiple exchange rates regime implemented during the administration of former President Muhammadu Buhari by the Central Bank of Nigeria (CBN).
He highlighted the importance of a unified exchange rate and emphasised the need to redirect funds from arbitrage toward meaningful investments.
Additionally, he called for a reduction in interest rates, describing the current rates as detrimental to both the people and businesses in Nigeria. He said, “The central bank must work towards a unified exchange rate…they should direct the fund from arbitrage to meaningful investment. “Interest rates need to come down, currently too high, anti-people, anti-business, we have to work on all of those”.
While addressing governors of APC, the president also said, “If we work together, the Nigeria of our dreams is not far away. Rest assured that we will not have multiple exchange rates anymore. The multiple exchange rates will be streamlined”.
Significantly, the unification of exchange rates involves the unification of exchange regulations and trading arrangements so that the new exchange rate regime is supported by an efficient and uniform regulatory and operational framework of exchange markets.
It also modifies the entire structure of relative prices between traded goods by eliminating the implicit set of taxes and subsidies that a multiple exchange rate system produces. In a blog post, the President of the World Bank Group, David Malpass, warned that Nigeria’s parallel exchange rate is harmful as it worsens future debt service payments and increases the risk of debt distress.
According to Malpass, about 24 emerging and developing economies, including Nigeria, have an active parallel currency market. He added that “in at least 14 of them, the exchange rate premium —the difference between the official and the parallel rate — is a material problem, exceeding 10 percent.”
In the blog post, it was disclosed that Nigeria has an exchange rate premium of 61.7 percent as of March 2023. The World Bank chief noted that parallel exchange rates are expensive and can drive corruption.
Analysts, who spoke to Daily Independent, said President Tinubu’s decision to unify the exchange rate reflects a departure from the multiple exchange rate system that was in place during the previous administration. In his reaction, Dr. Ayo Teriba, CEO of Economic Associates, applauded the president’s desire for a unified exchange rate regime.
He said, “I think there is a national consensus that subsidy of any type, subsidy in fuel price, exchange rate are market distortions. Having multiple exchange rates is a distortion. The market reality is closer to the Bureau de Change rate which is what common Nigerians will face if they want to change their currency.
“The CBN rate is only available to the privileged. It is a subsidy to the privileged and it is not fair. The exchange rates should be unified just like the fuel subsidy has been removed.
“I agreed with the president that we need to unify the rates, how and when we can debate but there should be a single exchange rate is sensible and undebatable. It is a leakage of our government resources. We are losing revenue by selling forex to some people at subsidised rates and they turn around to sell it in the market. We cannot continue to allow this arbitrage. Culled from Independent
