Nigeria was spending $1.5 billion monthly to defend the Naira before FX reforms
The special adviser to the President on Information and Strategy, Bayo Onanuga, said Nigeria was spending a whooping sum of $1.5 billion monthly to peg foreign exchange before Tinubu’s unification policy in June 2023.
Onanuga made this disclosure in a statement on Sunday in response to a report published in the New York Times criticising the Nigerian economy as facing the worst trajectory in a generation.
According to Onanuga, Tinubu is not responsible for the economic challenges currently bedeviling the nation, adding that the country’s public finance was broken before the emergence of the president.
Onanuga said keeping such a low rate for foreign exchange led to an unprecedented increase in arbitrage practices with over 5000 BDC operators abusing the pegged rate.
“Like oil, the exchange rate was also being subsidized by the government, with an estimated $1.5 billion spent monthly by the CBN to ‘defend’ the currency against the unquenchable demand for the dollar by the country’s import-dependent economy.
“By keeping the rate low, arbitrage grew as a gulf existed between the official rate and the rate being used by over 5000 BDCs that were previously licensed by the Central Bank.
“What was more, the country was failing to fulfil its remittance obligations to airlines and other foreign businesses, such that FDIs and investment in the oil sector dried up, and notably Emirate Airlines cut off the Nigerian route,” Onanuga said.
Stability now restored to the Exchange Rate
Speaking further, Tinubu’s aide said after months of foreign exchange storms, stability has now been restored to the FX market.
According to him, the fact that the rate now trades below N1500/$ is an indication that the FX market is no longer unstable.
He also mentioned that there are various projections that the exchange rate may regain its value back to N1,200/$ or N1,000/$ before the end of the year.
“President Tinubu had to deal with the cancer of public finance on the first day by rolling back the subsidy regime and the generosity that spread to neighbouring countries. Then, his administration floated the naira.
“After some months of the storm, with the naira sliding as low as N1,900 to the US dollar, some stability is being restored, though there remain some challenges.
“The exchange rate is now below N1500 to the dollar, and there are prospects that the naira could regain its muscle and appreciate to between N1000 and N1200 before the end of the year,” Onanuga added.
What you should know
The naira has continued to maintain its value since May, posting some gains against the greenback as it now trades slightly below N1,500/$.
- Price action shows that naira bulls have been able to keep the naira within the N1500/$ borderline as an uptick in the CBN’s FX reserves moderated concerns in the country’s FX market.
- According to Nairametrics FX market watch, the local currency gained 0.02% from N1,481.32/$ last week to N1,481.03/$ at the official market, while the BDC rate rose 0.14% from N1,477/$ to N1,475/$.
- These positive trends in the past few weeks show a deviation from the instability of the currency that overwhelmed the FX market, pushing the naira against the greenback as low as N1900/$ as of February 2024.
- Meanwhile, the Cardoso-led CBN repeatedly said the goal is to maintain exchange rate stability while upholding a transparent, willing buyer, willing seller market system.
