How to address Nigeria’s forex crisis – Agora Policy

Agora Policy, a policy think tank based in Abuja, suggests several strategic ways. Central Bank of Nigeria (CBN) Nigeria’s weak foreign exchange market can be tamed as the naira continues to weaken against the dollar across the country’s foreign exchange markets.

The policy think tank said in a new report released on Monday titled “Steady progress in Nigeria’s immature foreign-exchange reforms,” ​​Nigeria is rapidly pumping large amounts of dollars to provide liquidity to its economy. He said he needed to save.

Over the past three months since the exchange rate unification move took effect, the naira has continued to fall on the official market, trading above the benchmark at 780.00 naira from 465.13 naira in mid-May.

Similarly, local currencies hit all-time lows on the parallel market, trading above Naira 930.00 per dollar.

The think tank said in its report that without direct attempts to stop this trend, the temptation to return to the old ways of managing (multiple exchange rates) looks tempting and could blow away current opportunities. said to be sexual.

The Agora Policy Report said, “Fundamental data show that large imbalances in Nigeria’s external accounts have been caused by a combination of structural changes and policy failures by the CBN, which is the bane of the current currency crisis. It became clear that the existence of

A mere currency adjustment to adapt to reality could lead to temporary gains and then a return to previous practices, he said.

To avoid this cycle, the think tank considers the exchange rate as part of a comprehensive economic plan in which the exchange rate acts as a tool for attracting capital flows that promote export diversification and overall development. He pointed out that monetary policy should be included.

background

Agora Policy’s intervention comes against the backdrop of new revelations that the Central Bank of Nigeria’s (CBN) securities borrowings from JP Morgan and Goldman Sachs could free-fall Nigeria’s credit rating to junk. there is

In its newly released 2022 financial report, Apex Bank said it had borrowed $7.5 billion by pledging securities from US banks JP Morgan and Goldman Sachs.

Also read: Naira Towards Unified Exchange Rate – Finance Minister

Analysts said the loan deal, which the central bank said was signed “in exchange for securities held as collateral,” could undermine the country’s fragile financial situation and credit rating.

Already amid a growing crisis of confidence in the economy among investors, Nigeria’s 2030 dollar-denominated government bond fell 2.295 cents on Friday to a one-month low of 83.221 cents. Ta.

Our goal

To meet current challenges, the think tank says, policymakers should strike iron while it’s hot by seeking large sources of dollar liquidity on concessional terms to avoid reform fatigue. said it needs to be considered.

He said this could be achieved by considering options for sizable ($5-10 billion) stand-by agreements from multilateral institutions with the aim of gaining credibility.

“Nigeria, which is ahead of schedule in its fiscal consolidation and external sector adjustments, has the credibility to embark on key partnerships to facilitate increased capital flows,” the report said.

The think tank explained that while this is a tough political issue, desperate times call for bold and desperate measures.

The report said the global geopolitical environment meant that there was a window through which this funding could be obtained if Nigeria were ready to push the boundaries.

“These dollar flows are necessary to give the market a ‘breather’ while remaining unsettled. policy makers may return to the deal,” the report said.

He said that there are several variations of flexible foreign exchange regimes, so CBN should try to be flexible and be realistic not to rule out any options.

“The goal is to ensure that exchange rate adjustments reflect trends in the balance of payments in the short and medium term,” the think tank said.