News Column

Finance Expert Wants CBN to Ammend Naira's Exchange Rate

May 5, 2014

Bassey Udo

The Chief Executive Officer of Financial Derivatives Company Limited, Bismarck Rewane, has said that it was no longer desirable for the Central Bank of Nigeria, CBN to continue to keep the Naira exchange rate within its target band of N150-N160 to the dollar.

Mr. Rewane who spoke at the 2nd Quarter 2014 edition of Nigeria's Learning Series by the Securities and Exchange Commission, SEC, in Abuja proposed a slight adjustment of the exchange rate band to between N155-N165.

He said with dwindling government revenues as a result of declining oil exports following incessant disruption of oil production activities through vandalism and attacks on oil facilities in the Niger Delta, it would be justifiable if the CBN tinkered a little with the exchange rate of the Naira to reflect the realities of the economy.

"For the CBN to hold the exchange rate band at all cost within its target band of N150-N160 to the dollar was no longer desirable, given the pricing and real performance indices of the economy," he said.

Mr. Rewane projected that the continued decline in oil revenues, the demand for minimum wage increase and upward review of the electricity price cannot be supported at the current level.

Reviewing the country's economic progress in cent times, Mr. Rewane noted that the Naira has regained strength and relative stability in the Foreign Exchange, FOREX market, with the market gaining about 2.5 per cent in April alone, after coming under a speculative attack in March, resulting in its losing over 11 per cent

The external reserves, he said, equally grew marginally to $38.1billion, while the Naira in the interbank market has been saturated with an average long position in excess of N500 billion.

This, he pointed out, suggest that there is an excess liquidity in the market, with interest rates coming down, in spite of the continued mopping up of liquidity by the Central Bank of Nigeria, CBN.

Urging government to emulate China, which for over 10 years, spent 15 per cent of its gross domestic product, GDP, or about $75 billion, on infrastructure development, Mr. Rewane said the country must adopt one of four strategies that is consistent with its national objectives if it must grow.

The strategies include either one that is export -led, if the objective is to be competitive with other countries like Japan, China, Great Britain; consumption-led, if there is a huge market that would force production to respond; government expenditure-led; or investment-led.

He also spoke on fuel subsidy, infrastructure funding gap, electricity tariff regime and oil production and revenue accruals and other economic outlook issues, pointing out that as hard as the CBN may try to maintain the current currency exchange rate band, the imperatives of the domestic and international economic support its adjustment.

He explained that efforts to grow the economy may continue to be undermined if consumption remained low, in spite of the country's huge GDP size, hence the need for policy measures to ensure income redistribution between the rich and the poor in the country.

Though he noted that discussions on the desirability of the removal of fuel subsidy have resurfaced in recent times, he said the signals were that government may not attempt any serious decision on it until after the 2015 elections, considering the likely dire backlash.

He said for Nigeria to grow like all other developing or developed countries, every Nigerian, particularly the leaders, must "stop doing stupid things", "start doing smart things" and "do smart things in a modern way."

Mr. Rewane, who was a guest speaker on the theme; "The Rebased GDP", identified some practices that could constitute the different categories.

For Nigeria to not measure the performance of her economy at all, or do so, by the recent re-basing exercise by the National Bureau of Statistics, NBS, after more than 25 years, he noted, constituted some of the stupid behaviours that must be stopped.

He said now that the country's economy has been re-based, making it possible for the people to know the growth and productive capacity of each sector of the economy, it was obvious that the country has started doing away with stupid things and embracing smart things.

To launch the country on the path of sustained growth and development, Mr. Rewane said the country must emulate other developing and developed economies of the world to modernize the smart ways of doing things, by ensuring timely and regular reviews of the her growth processes for effective planning, policy conception and execution.

He said every Nigerian, particularly the leaders, needed to take time to tick off their daily appraisal of policies, actions and inactions under the three categories of 'smart', 'stupid' and 'modern' to know the direction of the country's economic growth.

"If at the end of the day we have more stupid things than smart and modern things, then it would become obvious that Nigeria is not going to get better in the near future. But, 'If we have more smart/modern things, and less stupid things, then we know the country's future is looking better," he said.

In his presentation, the Statistician General of the Federation, Yemi Kale, underlined the significance of accurate statistical data to economic planning and development, noting, however, that the country's GDP growth was not necessarily synonymous with job creation, poverty alleviation and overall development.

Mr. Kale said the GDP figures, which reflected the real size of the Nigerian economy as the 26th largest in the world, were relevant to national development initiatives, as they would guide public and private sector stakeholders in their socio- economic decisions on the future of the economy and the country's overall development.

On the rationale of the recent GDP re-basing exercise, Mr. Kale said a key benefit was that its results would enable policy makers and analysts obtain more accurate set of economic statistics that present a truer reflection of current realities, for evidence-based decision-making.

"Re-basing the GDP will enable government to have a better understanding of the structure of the economy, identify the sectoral growth drivers, and where investment and resources should be channeled to grow the economy, create jobs, improve infrastructure and reduce poverty", Mr. Kale stated.

On the challenge of ensuring that the country's capital market realized its primary purpose of making medium to long-term funds available to investors to encourage GDP growth, the Statistician General urged the SEC to devise ways of attracting the formal establishments not listed in the stock market to do so.

"As more companies attempt to raise funds from the capital market, more companies would be quoted on the stock exchange, market capitalization and liquidity would expand. As more companies raise funds from the Capital market, it leads to more efficient allocation of resources and adherence to corporate governance guidelines and growth," he said.

He called on SEC to review or amend the regulatory processes to encourage micro and small-scale enterprises to access long-term capital more easily, as part of efforts to unlock the constraints that hinder the participation of these categories of people in the capital market.

Developing other financial instruments to deepen the participation the capital market, he added, would help in promoting the growth of the country's economy more rapidly.

On its part, he said the NBS would ensure that the country's economic data were updated regularly to give a clearer picture of the economic landscape, identify opportunities for growth and wealth creation and help provide tools for policy makers and investors to take economic decisions to grow the economy.


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Source: AllAfrica


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