Notable Economists Supports Sanusi On Naira Devaluation

Notable economists across the country have joined a former Central Bank of Nigeria Governor, Lamido Sanusi, to call for the devaluation of the naira, saying failure to do so will hurt the economy further.

Sanusi, who is the Emir of Kano, had on Thursday at the All Africa Business Leaders’ Awards in Lagos, advised President Muhammadu Buhari and the CBN to devalue the currency, ease foreign exchange controls and remove the controversial fuel subsidy scheme in order to save the economy from a looming crisis.

The CBN has since said that there are no plans to devalue the currency any time soon.

Notable economists, including the Chief Executive Officer, Financial Derivatives Company Limited, a Lagos-based research firm, Mr. Bismarck Rewane, said there was a need for the central bank to further adjust the value of the naira following the changing fundamentals of the nation’s economy occasioned by the fall in the prices of oil, the main source of Nigeria’s revenue.

Rewane said, “There is no fixed exchange rate for the currency; the currency’ value changes with the fundamentals of the economy. So, if the price of oil was $110 per barrel and your value was X, it will not be fair if it is the same when it is $47. So, the currency changes in value. You either believe in a fixed exchange rate regime or floating exchange rate regime.

“We should have a managed exchange rate not a free fall exchange rate. You either have a fixed exchange rate regime, which is not possible or viable; or you have a floating exchange rate, which assumes that the value of the currency will change if the fundamentals of the economy changes. Today, because the price of oil is lower, the value of our currency will have to be adjusted accordingly.”

A Professor of Economics at the Ekiti State University, Abel Awe, said he agreed with Sanusi that the naira should be devalued and the CBN’s tight monetary policy needed to be eased in order to increase lending to the real sector.

According to the don, the CBN’s efforts to defend the naira havedepleted the external reserves from over $40bn to $30bn, while the administrative controls that the regulator put in place to preserve the remaining reserves by delisting 41 items from the official forex market are hurting the economy,especially the manufacturing sector.

Awe said, “The reality on ground does not guarantee that the naira should be at 197 against the dollar. Manufacturers are not accessing forex to buy necessary raw material inputs. The CBN needs to get the true value of the naira.

“The government may be holding on to this position because of what they had said about devaluation during the campaigns, but failing to devalue the naira may not pay us at the end of the day.”

A team of economists from Afrinvest West Africa Limited and Lagos Chamber of Commerce and Industries supported the call for the devaluation of the naira.

A note from the Afrinvest economists read, “We will like to align with the former CBN Governor, Mallam Muhammadu Sanusi II, on the issue of devaluation of the naira. With a draining external reserves (covers just about 6.8 months of imports vs. 11 months recommended by the IMF for emerging countries) in spite of the numerous administrative policies introduced by the CBN, shows that the central bank lacks the capacity to sustain the naira at this current level.

“While we acknowledge that Nigeria is an import-dependent economy, the inability of the CBN to meet dollar demand has generated uncertainties within the forex market. Consequently, this has discouraged foreign investors, and coupled with the low oil prices, the accretion of the external reserves in the near term will be a tall order.”

The Director-General, LCCI, Mr. Muda Yusuf, said, I am in agreement with the views expressed by the former governor of the central bank”. This CBN’s approach to the management of the forex market has created more problems for the economy than it has solved.

“It has resulted in transparency issues in forex allocation; round tripping because of the huge disparity in rates; liquidity problem as it is very difficult to access foreign exchange (even for items that are valid for forex); absence of level playing field; and uncertainty as the forex market has become very unpredictable. The effects of all these have been adverse and profound on business.”

Mr. Yusuf added, “The CBN has fixed an exchange rate, which it lacks the capacity to support in terms of supply.” Its policies also represent a major obstruction to the inflow of autonomous foreign exchange. It is a very curious model. The CBN also got itself needlessly entangled in trade policy issues, which have caused varying degrees of dislocations for investors in the economy.

“My view is that the CBN should return to the status quo and focus on the creation of a foreign exchange market that is efficient, transparent, predictable and market-driven. The apex bank should, thereafter, collaborate with other economic ministries like Finance, Trade and Investment, National Planning Commission and the Nigeria Customs Service to articulate fiscal policy measures to fix sectoral, productivity and competitive issues in the economy.”

However, other notable economists, including the Chief Executive Officer of Economic Associates Limited, Dr. Ayo Teriba; Prof. Pat Utomi; and Prof.SheriffdeenTellaof the Economics Department of the OlabisiOnabanjo University, Ago Iwoye, offered differing views on how the country could have a more stable currency.

Prof. Utomi stressed that Nigeria required a clear national strategy on the currency, while lamenting that the country lacked the discipline required to defend the naira.

He [Prof. Utomi] said, “We have to have a clear national strategy on our currency. There are certain disciplines that are required to go along with whichever choice we make on whether to devalue or not devalue. The problem that I have is that in trying to defend/manage the exchange rate, it appears we do not have the discipline to deal with that strategy.

“It is not a matter of right or wrong but whichever choice we make demands discipline to see it bear the appropriate fruits. And we have not shown the discipline for a managed exchange rate regime; so, the market still remains the best response. This takes us back to the problem we had in the 1980s and 1990s. I will generally favour a managed floating exchange rate. An exchange rate that is partly managed and that is also partly market-driven.”

Teriba said countries with strong currencies were busy strengthening them by doing something.

“We need to ask what we have done this year to strengthen our currency. Nigeria needs to manage a transition to a more stable currency. Right now, the currency is unstable and we need to see how to strengthen the naira and make it stable. We should be looking at how we can reduce the impact of the low oil price regime on the currency,” he explained.

Tella believes that the naira should not be devalued but, said that the CBN needed to review its exchange rate policy.

“We need to review our exchange rate policy. We cannot fix value for the naira. we should allow the market to determine the exchange rate.”

“And that’s the way forward to save the economy from a looming crisis.”

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