Nigerians’ growing demand for foreign exchange for health and education purposes abroad is putting pressure on the naira at both the foreign exchange market and interbank offered rate (NIBOR) BusinessDay investigations have revealed.
The high demand for foreign exchange at the bi-monthly Wholesale Dutch Auction System (WDAS), under the invisible sector is putting pressure on the Central Bank of Nigeria (CBN) to continue to defend the naira.
The 2013 budget allocation to both the health and education sectors at 12 percent is regarded by analysts as inadequate to check foreign travels for these services.
“The citizenry have no confidence in the services rendered by these sectors, thereby they will continue to seek alternatives by going abroad,” said analysts at Afrinvest.
The CBN in its latest quarter report said, “the invisible sector accounted for the bulk (42.4 per cent) of total foreign exchange disbursed in the first quarter of 2013 followed by industrial sector (18.9 per cent), mineral and oil sector (15.0 per cent),
manufactured products (10.5 per cent), food products (8.9 per cent), transport sector (3.9 per cent) and agricultural products (0.4 percent).”
Indeed, the CBN estimated foreign exchange demand by authorised dealers in the first quarter at $ 4.79 billion, is 11.7 percent above the level in the preceding quarter.
Consequently, the pressure on the naira has brought about a rise in NIBOR rates, typified by call moving from 10.8750 to 12.7083; 7days, 12.4583 from 10.5933 and 60 days to 13.1250 from 11.4167 as at Monday.
Similarly rates at the Nigerian Interbank Foreign Exchange Market (NIFEX) are now hovering between N158/59 to the dollar.
CBN’s intervention in WDAS had moved beyond $300 million in recent times to $371 million for May 25 and $350million for June 3 biddings at WDAS respectively.
According to Bismarck Rewane in his recent bulletin on the economy “exchange rate volatility continued in the forex market since the last MPC meeting which resulted in an increase in CBN intervention to keep the naira stable. CBN forex sales at the WDAS rose by 78% to $4.1bn since the last MPC meeting and resulted in a stable exchange rate of N155.74/$ at the official market.
Responding to BusinessDay enquiry, analysts at Afrinvest said, “this perfectly reflects the poor state of the Nigerian economy. Afrinvest Research attributes this to increased reliance on foreign services, which has led to the huge foreign exchange
outflow from the invisible sector, given that foreign currencies will be required to pay for the services (especially health and education) that Nigerians demand from the developed countries”.
They observed that the development would continue to pose serious challenges for the economy and by implication, build pressure around the naira, adding that “the way forward is for government to design policies that would curb frequent repatriation of profits. Profit made by foreign companies can be reinvested in the country for certain periods before repatriation. This will help boost economic growth in the long run.
“Also, there is the need for government to invest more in the health and education sectors (only 12% of total aggregate expenditure in 2013 budget). The present state of the aforementioned sectors is appalling.”