Experts Worry Over Economy, Differ On Naira Devaluation

Economic and financial experts on Wednesday expressed divergent views on the latest decision of the Central Bank of Nigeria, but agreed that the economic crisis plaguing the nation had yet to be addressed.

The CBN’s Monetary Policy Committee had on Tuesday decided not to devalue the naira and left the Monetary Policy Rate, Cash Reserve Requirement and liquidity ratio unchanged at 11 per cent, 20 per cent and 30 per cent, respectively.

While some of the experts said they had expected a devaluation of the ailing currency, others hailed the CBN’s decision on the naira.

The naira traded at 306 against the United States dollar at the parallel market on Wednesday, down from 305 on Tuesday.

A Professor of Financial Economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, who expressed surprised at the decision of the CBN, said, “The economy is extremely suffering now. I would have expected that they would have reduced the MPR and the CRR at least by 50 basis points.

“They should have devalued the naira a little bit so as to close the gap between the parallel and official market rates.”

Ukpong said the economy would accelerate a little bit into a recession, adding, “Their action on Tuesday, to me, was a puzzle. I think they missed the opportunity to adjust the economy. It is going to get worse before it gets better. But if they do not allow the market to adjust properly, it will take longer before it gets better.

“I think it doesn’t look good for the economy; it will make the economy to do worse than it is now.”

The Managing Director and Chief Executive Officer, Economic Associates, Dr. Ayo Teriba, said the foreign exchange supply issue had not been addressed.

He stated, “I think the foremost challenge is the stability of the naira, and I don’t think it is the core of the MPC. The reason the naira is unstable is the decline in oil price that has led to a corresponding decline in foreign exchange available to Nigeria.

“The only way you can stabilise the exchange rate of the naira is to find alternative sources of forex to replace the income lost from the decline in oil price.”

He said, unfortunately, the government had not started taking any steps in that regard, adding that Saudi Arabia this month offered 10 per cent of its stake in the state oil giant, Saudi Aramco, and also opened up a wide range of sectors to further lure foreign investment.

Teriba said, “But the Nigerian government has not started to look for alternative sources of forex inflow to stabilise the currency. It needs to open up all the infrastructure sectors that are under government monopoly now.

“We need to open rail, power transmission and the refineries to foreign investment now because the government can’t find the money to invest in these sectors, and those sectors are halting growth.”

He added that devaluing the naira would not do any good, noting, “It could do more harm because if you begin on the journey of devaluation now, you will have repeated rounds of it and you might embark on a very sad journey to currency collapse.

“It is a supply problem; fix the supply of forex. It is not an exchange rate realignment issue; we have a capital inflow crisis; fix that and you will discover that there is nothing wrong with the naira.”

The Head, Department of Banking and Finance, Nasarawa State University, Keffi, Uche Uwaleke, commended the CBN for not bowing to pressure to devalue the naira.

Uwaleke, an Associate Professor of Finance, told one of our correspondents that it would be wrong for the CBN to devalue the naira at a time when the country was not earning enough income from exports.

He noted that devaluing the currency would only provide a temporary solution to the nation’s economic problems, adding that it would be better for the CBN to continue to restrict foreign exchange for the importation of non-productive items.

Uwaleke, however, called on the CBN to revisit the ban on forex sale for the importation of 41 items to stimulate activities in the manufacturing sector.

The Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr. Johnson Chukwu, said, “It was my wish that they would adjust the midpoint of the exchange rate to a more realistic and market-reflective rate, but I was not quite sure that they were going to do that given the clear position of the executive arm of government, which had objected to any devaluation of the naira.”