FOREX: What Nigeria must do to halt free fall of naira – Economists

  • The many policy errors of CBN under Emefiele
  • Why National Assembly should amend CBN Act
  • Wale Edun up to the task if given free hand – Analysts


Uba Group

Renowned economists have revealed how some of the monetary policies of the Central Bank of Nigeria under the leadership of the suspended Governor, Godwin Emefiele, have put Nigeria’s economy in a very precarious state.

They contended that the apex bank tried to achieve more than its capacity and also allowed political interests to guide its economic and financial decisions, which became problematic to the nation’s struggling economy.

The latest CBN report showed that the future of Nigeria’s economy looks gloomy.

Nigeria’s debt to some foreign banks may cost the country 40.7 per cent of its entire foreign reserves currently standing at $34.1 billion.

Data sourced from Nigeria’s apex bank 2022 report showed that the CBN owes Goldman Sachs $500 million, JP Morgan, $7 billion in securities lending and another $6.3 billion owed in foreign currency, which are forex obligations it needs to make to foreign investors.

Calculations showed that ability to meet the above obligations due to FX shortages might cost Nigeria 40.7 per cent of its $34.1billion foreign reserves.

Experts said that the above development had caused distrust about Nigeria’s current external reserves despite the CBN delivering a much-needed reform in floating the currency in June.

Africa’s largest economy’s external reserves by virtue of statute are segregated into three distinctive portions – the CBN, the Federal Government of Nigeria and the Federation – reflecting ownership of the reserves.

The CBN receives foreign exchange inflows from crude oil sales and other sources of revenue on behalf of the government. Such proceeds are purchased by the Bank and the Naira equivalent is credited to the Federation account.

These proceeds are shared each month, in accordance with the constitution and the existing revenue-sharing formula. The monetised foreign exchange, thus, belongs to the CBN. It is from this portion of the reserves that the Bank conducts its monetary policy and defends the value of the Naira.

“The National Assembly should make the law guiding the CBN to make policies and programmes to be subjected to the approval of other bodies aside from that of the CBN Governor and the President of Nigeria”

In an interview with The Point, an economic expert, Yinka Anjous, said the manner by which Emefiele implemented the cashless policy, which brought about the redesign of the naira, caused great havoc to the nation’s economy.

The finance guru noted that the embattled CBN boss had ulterior political motives to frustrate some politicians seeking positions from clinching them, hence the bad timing of the introduction of the new naira policy.

He explained that the rush in the implementation of the policy crumbled Small and Medium Scale Enterprises and endangered the economy in its larger sense.

While disclosing the need for cashless policy and new currency in Nigeria, Anjous said, “The cashless policy, new naira notes and Naira floatation were not supposed to endanger the economy per say because Godwin Emefiele took the right steps but the policies became dangers to the economy because of Emefiele’s wrong notions behind them. Emefiele had ulterior motives.

“What Godwin Emefiele did will be revisited but without politics, because we will still have to do cashless whether we like it or not in a normal way, not Emefiele’s way. Cashless policy is a necessity in any economy because we cannot continue to spend cash. And that’s why I supported him (Emefiele) that time until I realised that he introduced politics into it.”

He also identified floating of the naira as another danger to the economy, saying for a country that depends on importation, it would be disastrous to the economy to float the naira.

Proffering solutions, the expert said cashless policy and new currency were necessary but advised that aggressive sensitisation and orientation of members of the public should be carried out before such policies are implemented.


He also asked the National Assembly to rejig the CBN Act to prevent unilateral decisions of the CBN Governor and Nigerian President whenever it comes to making economic policies.

“Nothing is static, every policy changes with time and you know economy is a social science and not a pure science and not two times two is four. So, over time, we need to be amending the policies. For example, the idea that gave the immediate past CBN Governor the chance to do whatsoever he likes, I think we should go back to the drawing board, and I am referring to our Legislature now, to rejig the CBN Act so that it won’t allow any single person to have a go at economic and financial policies because unilateral decisions are very dangerous to the economy.

“There should be checks and balances; they are there alright but we should make them more stringent than the regulations are at the moment. Don’t forget that the CBN has autonomy but even with that, it needs to consult with the President. Any decisions the CBN Governor takes must be in conjunction with the President. Let me remind you that when Goodwin Emefiele wanted to do the cashless policy, he went to the President because he knew that he could not do it alone. But, unfortunately, he was able to convince the President as to what he wanted to do until he realised that he wanted to play politics with the cashless policy.

“So, the National Assembly should make the law guiding the CBN to make policies and programmes to be subjected to the approval of other bodies aside from that of the CBN Governor and the President of Nigeria,” he stated.

For an economic historian, Tunji Ogunyemi, the naira will continue to experience free fall if the country fails to produce and engage in exportation of products.

“The margin of the official exchange of the naira and the reduction of the exchange value of the naira consequentially is a question of our lack of productivity in the economy. For example, if the naira exchanges for N800 today to the dollar, it is a function of over demanding of the dollar and it’s a function of speculation,” he said.

Ogunyemi, an Associate Professor at the Obafemi Awolowo University, advocated for productivity in order for the naira to compete favourably with the dollar.

He said the way to go for Nigeria is to produce and export its products, saying, “What do you export in Nigeria to get the foreign exchange? Is it not oil? Two million barrels total in OPEC but you have only been able to do 1.2 million in the last two months. We produce too little and people are complaining that the naira is falling against the dollar; the naira must continue falling against the dollar until Nigeria starts producing.

“If you want to prevent it from falling, let Ekiti State begin to do plywood industry and export it to Romania, let Osun exploit its gold in Ilesa and Ife corridors and export it to China, let Katsina State do something about daily products and export cheese to Denmark, let Lagos State get fish from Epe and export it to Ghana, let Delta State do something about its chamber industry as well as its crayfish area and export them to America.”

“If you are not earning the dollar and your naira is not strong and you are complaining that the naira is falling against the dollar, it doesn’t make sense. Let people up the ante about productivity, let the Nigerian economy become productive, then we can now begin to say that the government has a duty to do something about our currency. The mess we found ourselves is about we not being productive and that is why our currency diminishes in value,” the economic expert declared.

Meanwhile, some analysts have passed a vote of confidence in the new Minister of Finance and Coordinating Minister of the Economy, Wale Edun, declaring that he will reform the country’s fragile economy if President Tinubu and other stakeholders should give him a free hand to act.

In the respective opinions of the analysts, including Oluyemi Omotosho-Junior and Ayo Ologun, Edun is a seasoned financial expert with extensive experience in the banking sector and has what it takes to transform the nation’s economy.

Ologun said, “Wale Edun is one choice that Tinubu got right because he knows everything about economy and finance. He will come up with good policies and ideas to reform the economy.

“I hope that the kind of team assembled to work with Wale Edun in the federal cabinet will not kill his profile, antecedents and capacity?”
According to the Director/Chief Executive Officer of the Centre for the Promotion of Private Enterprise, Muda Yusuf, the immediate impact of the revelation about the CBN report is that it is likely to further weaken the confidence of investors.

He said it would also further fuel speculative activities in the foreign exchange market, because the perception would be that the CBN might not have the capacity to defend the currency if the reserves had been so considerably impaired by these loans.

“And once you have that kind of fear, the tendency is for people to be more speculative, more pressure of demand to escalate which will of course begin to create all kinds of challenges for the economy, especially volatility of the exchange rate which is what we saw in the last two weeks,” Yusuf said.

On the immediate implication of it, he stressed, “But the truth of the matter is that even with the fact that I believe this economy has the fundamentals to be able to move on, especially if we are able to sort out the issue of our oil production, for me, that is one of the easiest ways to get out of this challenge, because if you look at the challenges the economy is facing, a big part of it has to do with the exchange rate. The exchange rate is affecting so many things, if we are able to deal with this our oil production matter, at least, if we are able to get back to meeting our OPEC production quota of 1.8 million barrel per day, given what the global crude oil price is, there are good prospects that we can easily turn the corner.

“But in the meantime, in order to tackle the immediate liquidity problem, you know the government through the NNPCL has been able to raise $3 billion.

Although if you look at the totality of our forex demand, $3 billion is not a lot but if you are looking at short-term liquidity problems, the $3 billion could also have a significant impact.

“If we complement that with other policy measures, I mean if you complement that with some measure of regulations in the market, I am talking of foreign exchange market, bearing in mind that the floating CBN is doing is not absolute floating, it is a managed float, that means the floating has to be managed and there has to be better scrutiny of demand for forex. There should be vigilance in the market in order to reduce the level of speculative activities in the market and to reduce the number of those who also want to demand forex for money laundering.

“The economy is also replete with a lot of illicit funds and when people are carrying illicit funds all around, one of the best ways they think they can keep it is to convert it to Dollars. Such things put a lot of pressure, especially on the parallel market, and once the parallel market begins to depreciate, it causes a lot of panic in the economy because, in all of this, you will notice that the exchange rate in the official window has been relatively stable. The challenge we have been having is that of the parallel market.”

The Lead Director, Centre for Social Justice and lawyer, Eze Onyekpare, in his reaction, said the situation exposes the Naira to pressure.

He stated, “What you are saying is that part of our reserves was used as collateral for the loans, right, if that is the case, that means there is an impairment, if there is a lien on that part of the foreign reserves, which is as good as saying that if you don’t pay then they will use that to pay themselves.

“The implication is that, you know we are using almost a hundred per cent of our revenues now to service debt. It is said that Nigeria’s foreign reserves is about $34.1 billion minus the amount we are currently owing as stated in the 2022 CBN report, so it has really impaired our foreign reserves. And lowering your foreign reserves, and bringing it down to about $20 billion for a country of about 218 million with a large appetite for foreign demands tells you that we have less than four months cover, in terms of our demand for forex, four months cover for imports as our reserves.

“It makes our currency rating get lower and the trust in our currency by international rating agencies, creditors, the international community and other economic actors. So, definitely, it will pile up the pressure on the value of the Naira and make it weaker against other international currencies.

“That is the implication, and of course we should know that the former CBN Governor, Godwin Emefiele was busy violating the laws because the CBN Act clearly states that the CBN was supposed to publish its account yearly, and since 2016, there was no account published. This would enable oversight by the Legislature and allow for public scrutiny and integration by the Nigerian people as to his stewardship. Of course, he deliberately hid those documents, he never published any until this time.

“It was a clear indictment on President Mohammadu Buhari, the CBN Governor was violating the CBN Act, but because he was in bed with him, the President couldn’t call him to order. Of course, he couldn’t have done those impairments of our foreign reserves without the authority of Mr. President. And the Legislature was a rubber stamp. You know what Senator Lawan as President of the Senate was doing, he was simply a rubber stamp, the Senate couldn’t hold any agency of government to account that is why we find ourselves here. It is a big shame, a very, very big shame.”

An economist, financial analyst and stockbroker, the Managing Director/CEO, Global Capital Limited, Aruna Kebira, said that Nigeria’s debts could be subjected to rescheduling.

“This means you can still owe and you are allowed to postpone payment, but you can service the debt by paying the interest and at that, we are not put in a precarious situation.

“Bad as the situation seems, if that happened, we could still have the latitude to enjoy an increase in our foreign reserves. To me, as far as the repayment is deferred, there would not be immediate pressure on the Naira, but if otherwise, it means the planned regulated floating of the Naira may not be feasible
“If the repayment is made and 40 per cent is wiped out, and with the current pressure on the Naira, we may see the dollar at N1, 500,” Kebira said.

“It was a clear indictment on President Mohammadu Buhari, the CBN Governor was violating the CBN Act, but because he was in bed with him, the President couldn’t call him to order”

Management Consultant and CEO, BIC Consulting, Boniface Chizea, explained that the issue of the debt owed by the CBN in relation to Nigeria’s external reserves is what is referred to as creative booking keeping.

He regretted that the Bank, over the years, had not been transparent in managing and disclosing the real external reserves of the nation.

“But now that the truth is being unveiled, the reality will dawn on everyone,” he said.

He warned that the Naira would keep declining against the Dollar if the current situation was not properly managed by the CBN, noting that the situation at hand would have a negative impact on the flow of foreign direct investment into the country as the level of confidence of foreign investors would be affected.

Chizea expressed worry that the leadership of the apex bank had failed the transparency test, which would take a serious toll on investment in the economy.

Another economist, Marcel Okeke, expressed disbelief about the level of the lack of transparency at the CBN.

“The more you look, the less you see about the operations of the Central Bank of Nigeria,” he said.

For instance, Okeke queried why the CBN would borrow money through the Nigeria National Petroleum Corporation Limited to fund the foreign exchange market when it actually could approach the same Afreximbank to incur the loan.

The Lagos-based economist and financial analyst also wondered why the CBN had suddenly reactivated the activities of the Bureau De Change after two years since the Emefiele administration stopped their operations.

Still talking about lack of transparency at the Apex Bank, he asked, “Who did they tell what they did to reverse the free flow of the Naira when suddenly they realised that it was about exchanging for N1, 000 to a Dollar?”

Okeke warned that the choice of the CBN to be secretive about its forex operations would negatively affect the confidence of foreign investors, leading to them being skeptical of bringing dollar into the country.

He noted that efforts should be channeled to repayment of debts and not for the CBN to borrow more from outside sources to defend the Naira.

To boost the flow of foreign exchange into the economy, Okeke urged the Federal Government to make concerted efforts to revive the moribund refineries in the country to reduce the pressure of sourcing for the scarce forex to import petroleum products.

“Rather than to keep licensing new importers to bring in petroleum products which will keep mounting pressure on the nation’s external reserves, the government will do well to repair bad refineries and also license modular refineries,” he argued.