• Thursday, July 18, 2024
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10 major implications of Naira exchange rates unification

ACTN tasks FG on convergence on exchange rate

With the Nigerian Naira now exchanging in the official forex market at market determined rates, a significant distortion has been removed.

Expectedly this will come with both positive and negative implications, according to Taiwo Oyedele, an economist and partner at consulting firm, PWC Nigeria.

The major impacts include:

1. Significant rise in government debt in naira terms by about N12 trillion to N90 trillion i.e. external debt of $42bn will increase by the difference between the old and new rates.

2. As a result of the above, debt to GDP ratio will increase by about 5%

3. There will be a corresponding increase in debt service cost with respect to foreign debt service

4. Government’s revenue will increase in naira terms resulting in a higher tax/revenue to GDP ratio. Corporate tax collection may however decline as many businesses crystallize forex losses due to the higher exchange rate

Read also: What to expect after Nigeria floats naira

5. Possible reduction in budget deficit if government’s forex revenue exceeds foreign currency obligations, an increase in budget deficit will arise if otherwise

6. Possible impact on the pump price of petrol which could inch closer to the current pump price of diesel

7. There should be some cost savings as government discontinues with the various fx interventions e.g. Naira4Dollar, RT200 etc which cost tens of billions of naira

8. The country will attract fx inflows especially from portfolio investors, FDI and exporters proceeds. Impact on diaspora remittances would be marginal.

9. The capital market will benefit as it is likely to appreciate further as foreign investors take position

10. There should be negligible impact on the general prices of goods and services as products already factored in parallel market rates to a large extent.