The Federal Government’s dithering on complementing fiscal policies and decisive action on the appropriate exchange rate regime may further damage the economy and cause a drop in the standard of living of the citizenry, BusinessDay investigations show.
The prominence of the parallel foreign exchange market, which is fast becoming the ‘new normal’ with exchange rate hovering between N380/400/$, against the official N199/$ analysts say, will see more companies folding up with the expected bourgeoning of the unemployment rate.
“We lost the opportunity to gradually depreciate the naira in line with our dwindling oil earnings and systematically align the economy with the prevailing reality. With the parallel market at almost N400 to the dollar, we will need a combination of capital controls and a sharp devaluation to achieve some equilibrium in the foreign exchange market and the economy, says Bolade Agbola, executive director, Cashcraft Asset Management limited.
“We are in between the sea and the blue. Cost of goods is bound to rise whether we devalue or not, as no importer, no matter it’s source of foreign exchange, will not price his goods at the prevailing parallel market rate which is the most foreseeable replacement cost.
The most viable solution is to use price to distribute the bulk of the pains of our dwindling oil fortunes .It is the rich that consumes the bulk of our foreign exchange, either through consumption of luxury goods, holidays abroad and payment of children’s school fees. Right pricing dollar purchase will hurt all but the rich more, Agbola added.
According to Bismarck Rewane, chief executive, Financial Derivatives Company, (FDC) “Nigerians are perplexed at the endless slide of their currency. This is happening even when oil price is up at $31pb. The debate as to whether to devalue the naira is not the real issue. The discourse should be whether we need an exchange rate policy or not. The absence of a policy is a recipe for economic anarchy and a race to the bottom.”
Rewane in the recent FDC Economic Bulletin for February 17, 2016 said, The CBN is resisting the idea of allowing the naira float and find its true value. The rumor about the restriction of payments on education and healthcare has led to a steep depreciation of the naira. The uncertainty in the forex market is fast feeding into the currency risk premium and thus making the naira turn into a banana republic currency.”
Also, in the FDC Bi-monthly economic and business update, he expressed surprise over past administrations’ failure to heed the basic principle of putting something aside in form of savings for the past 20 years.
“I am saying this today to illustrate the Macro-economic Culdesac which Africa’s largest economy and country, by population, is facing. The country is confronted by its steepest decline in oil revenue by 57.25% to $4.12bn, leaving a significant shortfall to fund the budget for 2016.
The funding gap which translates into an amount of N2.2trn is 1.93% of GDP. The countercyclical budget is meant to stimulate the economy into the path of recovery. There is also the more profound issue of the external sector imbalance, resulting from the acute shortage of foreign currency, particularly US dollar, from oil,” he said.
Friday Ameh, an energy analyst, advised that government’s economic management team and policy makers must wake up to their responsibilities and begin to formulate policy responses to the looming economic crisis, exacerbated by the foreign exchange policy and with the sense of urgency that is required.”
Ameh queried the impact of some technocrats recently appointed as ministers, saying that they should either prove their mettle or resign.
He concern over the lack of fiscal policy measures to complement efforts of CBN so far, saying ,“Are they ( the Economic Team) saying that they are comfortable with current happenings either in the economy or foreign exchange market”?.
Further investigations showed that banks have also either increased or introduced new charges to complement their dwindling fortunes occasioned by the phasing out of Cost on Transactions (CoT).
For instance, transfers within the same bank, that used to be free, are now attracting as much as N210, and the banks regard it as “Payment for counter cheque form charge.” This is aside from other hidden charges.
“Nigerians are daily being impoverished on account of bank charges and high cost of goods and services,” says Ameh.
John Omachonu
