Weakening naira should reflect true market realities – VP Osinbajo
Information making extensive media round reports that Nigeria’s vice president, Professor Yemi Osinbajo, had called for the devaluation of the naira. This comes when the value of the nation’s currency has continued to grow weak relative to the dollar.
During the midterm review of the President’s second tenure in office, the vice president explained how the Economic Sustainability Plan helped pull the country out of recession. After that, he urged the central bank of Nigeria (CBN) to rethink its demand management policies to reposition the naira from a continuously weakening trend if the nation must genuinely prosper.
“As for the exchange rate, I think we need to move our rates to [be] as reflective of the market as possible. This, in my respective view, is the only way to improve supply”, the vice president said.
Furthermore, Osinbajo mentioned in the meeting that, “We can’t get new dollars into the system, where the exchange rate is artificially low. And everyone knows by how much our reserves can grow. I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink, and that is just my view”.
Nigeria’s number two citizen further lamented the lack of access to foreign exchange by importers of critical resources and raw materials. He noted that the scarcity of dollars to fund critical imports has made the economy tighter since inflated imports are passed onto final consumers through higher production costs.
Since the remarks by the vice president on forex management in the country was made, various information channels have rolled out magnetising headlines, stating that Mr vice president has called for the devaluation of the naira.
Of course, the presidency has come to the open about this, and they have overturned the narrative to state that the vice president did not call for a devaluated naira.
Speaking on Tuesday, the media aide to the vice president, Laolu Akande, said that Osinbajo did not make any case for the already weakened currency to be devalued. Laolu cleared the general public in a signed statement that the vice president only advocated for a foreign exchange policy that will help checkmate arbitraging activities of individuals with a vested interest in the system.
According to Laolu, reports that Vice President Osinbajo called for the devaluation of the naira represented a mischaracterisation.
“Our attention has been drawn to statements and reports in the media mischaracterising as a call for devaluation, the vice president, Yemi Osinbajo, that the naira exchange rate was being kept artificially low”.
“Prof. Osinbajo is not calling for the devaluation of the naira”, he said. “He has at all times argued against a willy-nilly devaluation of the naira”.
The VP’s media aide further noted thus, “for context, the vice president’s point was that the naira exchange rate benefits only those who can obtain the dollar at N410/$1, some of who simply turn round to sell to the parallel market at N570/$1.
“It is stopping this huge arbitrage of over N160 per dollar that the vice president was talking about. Such a massive difference discourages doing proper business, when selling the dollar can bring in 40% profit”.
“This was why the vice president called for measures that would increase the supply of foreign exchange in the market rather than simply managing demand, which opens up irresistible opportunities for arbitrage and corruption.”
Indeed, importers have continued to lament the lack of access to foreign exchange at the official rates and have resorted to the parallel market to satisfy their FX demands. This interestingly frustrates the central bank of Nigeria’s efforts to ensure unabated access to the greenback to facilitate smooth trade.
On Tuesday, October 12, the official exchange rate stood at N414/$1, while the parallel rate sold at N568/$1. Closing this margin will require active policy intervention by the CBN.
While the CBN has rolled out some policies and initiatives to increase the flow of dollars into the country, the sustained scarcity still calls for a deeper look by the monetary authorities. On this, Osibanjo’s aide commented that “only a more market reflective exchange rate would ameliorate this; with an increase in the supply of dollars, the rates will drop, and the value of the Naira will improve”.
“The real issue confronting the economy on this matter is how to improve the supply of foreign exchange, but this will not happen if we do not allow mechanisms like the importers and exporters window to work”.
“If we allow this market mechanism to work as intended, we will find that the Naira will appreciate against the dollar as we restore confidence in the system,” he said.