Again, Tinubu Government Puts Cart Before the Horse in Its Fight To Revive the Nigerian Economy

Oct 15, 2023 | Uncategorized


On Thursday, October 12, 2023, the Central Bank of Nigeria announced that it is readmitting importers of 43 items banned by the leadership of Godwin Emefiele into the official forex market.

The full list of the items can be found here.

While this, on the surface, looks like a step in the right direction, as the new CBN management team led by Yemi Cardoso looks to find a solution to the bleeding naira in the foreign exchange market.

Naira to dollar exchange rate and CBN moves
CBN makes another move to help naira recover
Photo credit: @cbn
Source: Twitter

However, on closer examination, it is another case of putting the cart before the horse.

Well, this is not the first time; our leaders have decided to run before they could walk.

A simple scenario is the now-famous phrase from President Bola Ahmed Tinubu’s inagural speech on May 29, 2023 that “subsidy is gone.”

Read also

More dollars pump into Nigeria after CBN lifts forex ban on 43 items

The message was supposed to renew the hope of Nigerians living in a country where the government spends N97 of its N100 revenue to repay debts.

However, the consequences of the action are now being felt by many Nigerians who have had to pay over 224% more to buy fuel for their cars and generators to power their homes while salaries remained the same.

According to the NBS, monthly food inflation (a key metric to determine how stressed households have become) has increased from 2.19% in May 2023 when the announcement of subsidy removal was made to 3.87% in August 2023.

It was only after the Labor threatened a strike that the government had to respond by adding N34,000 to the salary of civil servants, while the rest of Nigerians working mainly in private organizations and the informal sector are left to their fate, except one can lay their hands on the so-called palliatives.

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Shehu Sani slams CBN for lifting ban on importation of toothpicks, cement, others

CBN 43 items

Just the FG, CBN is putting the cart before the horse with its decision to readmit 43 banned items into the official forex market.

It is even more shocking to see that CBN, in an explanatory note on its decision, claimed that the banned items were the reason the naira is under pressure and the widening disparity between official and black market exchange rates.

Part of CBN’s note reads

“In recent months, the widening premium between the official rate and the parallel market indicates that the rate has not been setting a clearing price.”

“Importers of these products rely on the parallel market to source FX for importing these goods. This puts additional demand pressures on the parallel market, thereby widening the gap with the official rate and permanently segmenting the market. Removing these restrictions eliminates the need for importers of these products to go to the parallel market, reducing the pressure on the naira.”

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Atedo Peterside, former Stanbic IBTC Bank Chairman, applauds CBN’s policy on 43 banned items

Why Naira is suffering

It is clear that Naira’s major challenge is not because of the banned items; it is simply because of forex supply.

It’s simple logic. when demand outweighs supply, items becomes more expensive.

Nigeria is largely an import-dependent country, and allowing, for example importers of toothpicks back into the official market, will simply add more pressure.

Already, the Investors and Exporters window has an average of $100 million in daily turnover, and with the entrants of fresh customers seeking from the limited pool, demands is expected to go even higher.

Also, there are backlogs of trapped funds, which, according to the International Air Transport Association (IATA), amount to $783 million for foreign airlines.

Fitch ratings, in fact, believe that the CBN has a backlog of over $12 billion to sort out.

Furthermore, the $3 billion crude oil swap loan from Afreximbank, which was greeted with fanfare, is currently experiencing delays.

Read also

Full List: Importers of Rice, Cement, Clothes, 40 other items can now access forex at official rates

Way forward

Although the CBN’s decision to readmit the 43 items has been applauded by some, especially the International Monetary Fund, it could bring more troubles ahead.

The CBN should have first secured enough dollars, either through more crude oil sales, foreign loans, or use of its reserves, to clear up its backlog of forex obligations, and then pump more dollars.

According to Paul Alaje, the Senior Partner and Economist at SPM Professionals the future is worrying.

His words:

“I don’t know who advised us on these 43 items. It’s important we rethink the decision before it is too late. Our issues are around insufficient FX.

“How is demand stimulation policy going to bring us out of the FX crisis? This may further weaken the naira,” Alaje said in reaction to the decision of the CBN.”

Once again, it is the cart before the horse, and Nigerians will now simply have to wait for the CBN to earn more dollars to keep up with its promise to pump more dollars into the foreign exchange market to ease pressure.

Read also

“We need to worry”: Experts react to CBN’s decision to lift forex ban on 43 items after 8 years

But how far can the CBN go with the promised intervention in the official market, given the depleting forex reserve, which is currently at a two-year low, only time will tell.

Yemi Cardoso unveils his plans as CBN Governor, promises shift From Emefiele’s Policies

Meanwhile in another report, Legit.ng revealed that Cardoso, CBN governor, has promised a policy shift in the future direction of the apex bank.

One of Cardoso’s plans is to shift CBN’s focus away from direct involvement in development finance initiatives, a hallmark of former Godwin Emefiele’s leadership.

Source: Legit.ng



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