The Lagos Chamber of Commerce and Industry (LCCI), on Tuesday said that the strategies of the Central Bank of Nigeria (CBN) to save the Naira from further downward spiral has not actually helped the currency as it merely ‘increases pressure on the exchange rate’ by channeling FX transactions to third parties.
This was made known by the President of the Chamber, Mrs. Toki Mabogunje, in a press briefing by the Chamber entitled The State of the Economy.
In the press release made known to newsmen, Mabogunje 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 stabilize 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)).”
The Chamber’s President went further to say that there exists lots of challenges in the FX market among which is liquidity. She said that many importers find it difficult to access forex for the goods they source from overseas.
She maintained that the Chamber is in support of the adoption of the Nigerian Autonomous Foreign Exchange Rate as the official exchange rate.
“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 continued.
She advised that the apex bank should intensify its interventions to bring in more benign market policies to increase liquidity.
She decried the rate of insecurity in the country saying it has adversely affected trust by investors making Nigerian business environment relatively unsafe, and this retards the growth of the country’s economy which she said is still below what it was prior to the outbreak of the pandemic in 2020.
With reference to Nigeria’s debt, Mabogunje said that “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).”
Azuka Edokobi is a Writer and Entrepreneur