The Federal Government has said N305 is a realistic exchange rate of the naira to the US dollar, blaming the hoarding of the United States currency by Shylock market speculators for the huge disparities in the foreign exchange market rates.
The Minister of Finance, Mrs. Kemi Adeosun, stated this when she appeared before the House of Representatives Joint Committees on Finance; Appropriations; and Aids, Loans and Debt Management, to defend the projections contained in the 2017-2019 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) yesterday.
She said the naira was valued between N305 and N315, adding that despite the recession, the national currency should not have crashed above N305.
She was at the meeting in company with the Minister of Budget and National Planning, Senator Udoma Udo Udoma; the Accountant General of the Federation, Mr. Ahmed Idris; and officials of the Central Bank of Nigeria (CBN), the Nigeria National Petroleum Corporation (NNPC) and the Federal Inland Revenue Service (FIRS).
“The factors responsible for the declining fate of the local currency are irrational and emotional,” Adeosun told the committee, explaining that the difference between the official and the parallel market rates could not be justified.
“In reality, the Naira should not be affected more than the N305,” she argued, explaining that this was so because the CBN had put in place measures to stimulate more supply of dollars to deal with its shortage in the market.
She, however, said the parallel market would soon collapse because it was not driven by any fundamental and was misleading the market.
Earlier, Udoma told the committee that MTEF was altered to conform with contemporary realities as the initial projections had become unrealistic.
He cited some of the alterations to include the adjustment of the inflation rate to 15 percent from the initial 12. 93 percent, and the adjustment of the exchange rate to N305 from N290 to the dollar.
The revenue target from Value Added Tax was reduced to N1.8 trillion from N2.1 trillion, while corporate tax projection was reduced to N1.7 trillion from N1.9 trillion.
He also said revenue projection from the Nigerian Customs Service (NCS) was reduced from to N714 billion from an initial projection of N1.2 trillion.
“All our macroeconomic projections have to be adjusted due to developments after the budget was finalised in August 2016,” he said. Explaining: “The economy was not as robust as expected; crude oil production was disrupted, and production came down to about half of the amount expected.”
Udoma, however, assured the lawmakers that the new MTEF was prepared after extensive consultations and remained in conformity with the Fiscal Responsibility Act.
The minister, who led the team also cited some positive adjustments to include an initial projection of the budget deficit of N4.438 trillion to N2.356 trillion; an increase in capital allocation to 31 percent from the initial 28 percent for the N7.3 trillion 2017 budget.
These, he said would be funded through outstanding royalties, while $1.5 billion is projected through Early Step in Rights, $926 million from oil production licensing, and $100 million from marginal oil fields.