It was the President of Dangote Group, Aliko Dangote that was quoted as saying in late 2015 that if any form of subsidy was removed from petrol, Naira will trade at N500 per dollar. Less than two years down the line, that prediction has come to pass. On the other hand, when devaluation experts continued to pressure the new administration on the need to devalue the national currency, President Muhammadu Buhari said he was not persuaded that any official devaluation would improve the dollar supply in the economy. He had argued that a previous devaluation under the same economic conditions did not improve the fortunes of the local currency. He accused some top officials of the Central Bank of selling the bulk of the available foreign exchange to Bureaux De Change, allegedly owned by them.
Since the president’s comments in February 2016, the value of the naira has continued to tumble. Early last week, the currency lost significant ground, dropping to N500/dollar at the parallel market. Even though it reversed the loss at the end of intra-day trading on January 27, to exchange at N498/dollar, it had crossed the critical threshold that analysts had predicted. The value of the naira has since then oscillated around the N500/dollar threshold. Foreign exchange traders have attributed the depreciation of the local currency to demand pressure on the dollar and the relative scarcity of the currency in the forex market. However, at the official market, naira still trades at N305.25/dollar, even as the External Reserve has improved, currently standing at US$28.9bn.
As things stand, the naira needs a wedge. We cannot continue like this. Its free fall has worsened an already bad economy. Inflation has worsened and misery index is high. Both are attributable to our dubious forex market. What we have may not be the true value of our currency and people have complained a lot about the different exchange rates depending on user. Something has to give to improve that rate before the attendant bad economics spawn a national upheaval; especially now that indications suggest further depreciation.
There is a consensus among financial experts that naira’s value could go even much lower in the course of the year, if urgent monetary and fiscal measures are not put in place to halt the drift. This frequent depreciation of the local currency is worrisome. The management of the forex market needs reformation, constant vigilance and stability. The high cost of forex has shot up the prices of goods and services, especially those that are dependent on dollar-denominated imports, which are in the majority. Even so, other categories of producers who may not depend on forex also buy other goods and services from the same market that forex has already influenced.
Gains recorded with slow but rising oil prices have not positively impacted the forex market. What really bothers us is there is no unanimity or coherence on solutions to this debacle. Different experts’ opinions pervade the polity. None is sure or clear as to what to do to get us out of this quagmire. Everyone intensifies conjecture. Conjecture is no solution. Yet, there must be a solution somewhere. With the failure of the recent increases in crude oil prices to check the depreciation of the naira against major foreign currencies, it appears that something more fundamental is forcing down the value of the naira. More than before, the currency market in the country needs key reforms. Beyond the growth of the Foreign Reserve, its application is critical to the performance of the naira against major currencies, and the general management of the forex market.
Nonetheless, one immediate measure could be an urgent meeting of the monetary and fiscal authorities and other key actors in the economy to find the way forward. This has become expedient because the real reasons for the depreciation of the naira could be deeper than imagined. Let the CBN address the dollar supply side of the market by allowing oil firms and banks to sell dollars to Bureau De change operators to ease the pressure on the forex market and halt the free fall of the naira. There is, clearly, a currency crisis in the country which the CBN and the Federal Government must fix. For us, just like the president, devaluation is not the solution to this crisis. Also, all efforts must be made to ensure that petroleum products are refined in Nigeria in no distant time. Policy formulators should also speak up more frequently. Speculation does not help anyone, more so in a period of crisis such as we have now.