…list conditions for forex rate review
With the expected production of refined petroleum products, especially,Premium Motor Spirit or petrol from Dangote Refinery by December, this year, the pressure on foreign exchange is expected to be lessen
According to the Central Bank of Nigeria, by year-end, the foreign exchange needed for the importation of petroleum products will reduce.
Governor of the bank, Godwin Emefiele, disclosed this on the sidelines of the ongoing World Bank/ International Monetary Fund 2022 Spring Meetings in Washington DC, where he also said Nigeria is working on merging its exchange rate on the various markets.
The apex bank boss said it is working on indigenous grown solution at merging the exchange rates, stressing that there is need to first merge the level of demand with that of supply.
He said: “What we do expect is to develop a homegrown solution that will lessen the situation. Nigeria is on a managed float and what that also means is that we cannot adopt what is being proposed that we go on a free float, doing that will create an exchange rate spiral for Nigeria as long as the demand surpass the supply of foreign exchange in Nigeria.
“With the Dangote Refinery coming up with the 650,000 barrels per day hopefully by around the end of the year. That will also start to also reduce the demand for foreign exchange that will normally will go for importation of petroleum products.
“I have often said between the importations of refined products alone, importation or whether it is rice or sugar or wheat, consumes close to about 40 percent of foreign currency that is needed to fund imports in Nigeria. And if we find, for instance, a situation whereby around the end of this year, we’re able to begin to see we are no longer going to be needing foreign import petroleum products.
“We have been at this since 1986 and that is why we are saying that whereas we are doing something to adjust the currency like for instance between 2015 and now, you would observe that we have adjusted the currency from about N155 to about N420 that it is today.
“So, we cannot be accused of not adjusting the currency that we are trying to adopt a very gradual approach towards adjusting the price to the level that it is today but at the same time. We have to be given a chance to also look at while we are adjusting price, we must also do something about demand and supply.
“That is the reason we are saying that we need to do something on demand to make sure that those things that we can produce in the country we restrict access to foreign exchange for them so, that that will encourage people to produce locally. When that happens. What it will mean is that the demand for foreign exchange will reduce and when demand for it reduces ultimately you will find that price will not rise beyond the expectation of Nigerians and we are achieving that.
The CBN governor also said the apex bank will consider the advice of the International Monetary Fund (IMF) to review its exchange rate policies once Nigeria deepens local production of goods and services.
He said: “When we raised the issue of over 43 items (excluded from the forex window), it had an impact on exchange rates and what we are doing is to put in place some intervention mechanisms to regulate the exchange rate. As long as demand for foreign exchange exceeds supply, we will continue to have these challenges.
“We have put some demand management policies which they do not like, the policies will be reviewed but we want to deepen the production of these items in Nigeria before we begin to review them,” Emefiele explained.
He said the IMF demonstrated in 2020, when the Risk-free rates (RFR) to all countries affected by the COVID-19 pandemic Nigeria benefited about $3.4 billion.
“In 2021, we received another fund of over $3 billion under special drawing rights. Our resolution at the IMF is that we always want them to understand our peculiar issues.”
He also addressed the recent moves by airlines to receive payments for international flights in dollars. “I have addressed this during Easter week and I have called them to tell them this is illegal to sell air tickets in dollars because it will polarize the economy and they have withdrawn that so I urge people to continue their business as it were.”
For the 2023 elections, Emefiele said: “At the central bank, we remain focused on our job and we are happy that we are playing our role in supporting the Nigerian economy. We have been at this since 2015 when inflation rate was almost at 19 percent, it came down to almost 11%. Because of the increase in energy prices and electricity prices, it went up to almost 18% again and we have managed to bring it down to below 16%.”
He said the bank was putting in place facilities to support households, businesses and others at single-digit interest rates, noting that the IMF has held a positive position about Nigeria’s growth prospect at 3.4%.
olusola Bello