Since the global rally in the oil market sent crude prices to their lowest in over 20 years, the Central Bank of Nigeria, CBN, has adopted a pegged exchange rate system.
The Nigerian Naira, NGN, has been trading against the dollar in a fixed position of NGN199-198 to 1USD. The CBN was able to achieve a pull off in this unorthodox strategy because it blacklisted more than 40 items key importers demand forex for. This has sharpened the dichotomy between the parallel market and official CBN window. The Naira now trades in the black market triple the average rate the apex bank quotes.
The first blow was the de-listing of Nigeria by JP Morgan from its emerging markets bond index, [EMBI]. The bond index which tracks the performance of major bonds and financial instruments issued by governments in emerging markets. Early last week, Morgan Stanley has threatened to remove Nigeria from is MSCI bond index if the currency controls persists and economic direction does not surface before 24th of this month.
However, the major consequence of the CBN’s forex regime is the current fuel scarcity crisis which perhaps might be easing off but might return if fuel marketers run dry of dollar reserves to make payments to foreign refineries.
Click here to download the report from NBS: http://www.nigerianstat.gov.ng/download/372
Worst of it is Nigeria’s inflation rate. Just yesterday, the National Bureau of Statistics, NBS, in Abuja released that “headline index increased by 11.4% (year-on-year) in February, roughly 1.76% points higher from rates recorded in January 9.6%” This is the highest in four years. In an email to Bloomberg, NBS said “Food prices rose 12.7 percent in March from a year ago, compared with 11.4 percent in the previous month, driven up by transportation costs, the planting season and foreign-exchange movements”.
As a confirmation that the data though an estimate is understating the obvious. Food and commodity prices have gone through the roof. Many Nigerians are spending nearly 100% more than what they used to spend on food. The government’s narrative that the poor would suffer if it removed currency pegs, a move that signal a technical devaluation, has now been debunked. The poor are currently the ones suffering from the government’s lack of or non-conventional Forex policy.
While the government is banking on its social welfare programmes and infrastructure projects in its 2016 budget to stimulate the economy and offer a reprieve for average Nigerians, the persisting impasse/confusion in the budget approval process fuelled by the wide gap between President Buhari’s executive and parliament, Nigerians are suffering needlessly.
The questions that need to be asked are: Is the CBN at its wits end? Are there no economic solution to Nigeria’s economic debacle? Will the CBN break the news headlines and announce a cancellation of its Forex rate controls?
These are disturbing questions that should be answered by the apex bank. The CBN headed by Godwin Emefiele, a former banker has been using some monetary policy to curb the rising. Increasing benchmark interest rate to 12% would not do much if the lingering fuel scarcity is not solved as commercial banks have stopped giving out fresh loans. Non-performing loans, NPLs, banks are in dire straits with bleeding balance sheets and profit warnings greeting investors weekly. Rising Food prices cannot be controlled as many imported food items made their way into the country through expensive Forex purchased in parallel markets.
Will Emefiele throw in the towel and call a truce? The waiting game is on.
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