Economists criticize Nigeria’s new FX policy, say its merely catering for the rich

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Economists, Bankers criticized Nigeria’s central Bank new Forex policy as merely catering to the rich. “The whole thing is a bribe, basically,” said a senior banker in Lagos.

“It is to quiet some of the criticism from a segment of society that has vociferously criticised the policy. But it does not address the fundamental issues.”
Nigeria’s central bank has edged closer to a full devaluation by making dollars available to private individuals at 20 per cent above the official rate.

The measure, which is partly a sop to Nigeria’s struggling elite, will allow Nigerians seeking dollars to pay foreign school fees or medical bills or to travel abroad to acquire them at the new rate.

The announcement comes while Muhammadu Buhari, the president, who has staunchly opposed devaluing the naira, is on extended medical leave in London. It will inevitably lead to speculation that Yemi Osinbajo, the vice-president, who is in charge during his absence, is pushing to change the system while he is gone.

The president was out of the country last year when other economic reforms he had resisted, such as raising fuel prices, were introduced. Analysts noted that the measure affects only a limited part of the market — about 20 per cent of the demand for foreign exchange — and was a long way from a full devaluation.

Some thought it could signal a bolder move ahead. “It appears Nigeria is ready to accept a weaker exchange rate,” said Kevin Daly, a portfolio manager at Aberdeen Asset Management. “I still don’t think they will follow the same course as Egypt and allow the naira to overshoot, but this is an encouraging move after such an underwhelming adjustment in mid-2016.”

Yemi Osinbajo praised for stand-in performance as country battles economic crisis However, the move still leaves those seeking dollars — outside a limited number of strategic industries, for which foreign currency is theoretically available — with no option but to go to the parallel market.

The rate there went from 510 to 550 on news of the new measures, suggesting that the government is still a long way from closing the gap between the official and parallel rates. Officially, the naira trades at 305. Before the new measures were announced, the dollar had been trading at a premium of about 40 per cent on the parallel market. Acute foreign exchange shortages have caused businesses, unable to import inputs, to lay off workers or shut down.

The central bank’s directive on Monday said that supplying foreign exchange at the official rate to the manufacturing sector would remain its priority. It added that it was removing a measure related to allocation to banks that had been criticised by the business community as an undue intervention in the market.

Nigeria is in its worst economic slump in 25 years because of low oil prices, which account for more than 90 per cent of foreign revenue.

It appears Nigeria is ready to accept a weaker exchange rate Kevin Daly, Aberdeen Asset Management The central bank said it was moving to full liberalisation of the foreign exchange market last summer, causing the naira to depreciate 30 per cent. But it then continued to ration scarce dollars and in effect reintroduce a currency peg. That forced demand once again into the parallel market.

Mr Buhari openly opposed what the central bank had described as a move to a “purely market-driven system”, criticising that policy a week after it was introduced. The president has been in London for treatment for an undisclosed illness for a month. In his absence, Mr Osinbajo, his more markets-friendly deputy, has quietly advocated reforms — including foreign exchange liberalisation — that are needed to secure a World Bank loan and draw investors back.

 

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