Economist brands CBN’s devaluation of Naira meaningless, cosmetic

A senior economist at Tellimer Research, Patrick Curran, has described the Central Bank of Nigeria’s decision to adopt the NAFEX exchange rate as “meaningless.”

In a note published on May 18, Curran said the decision was flawed and unlikely to have much impact on the nation’s economy.

He said: “So while unification of the official and NAFEX exchange rates would help simplify Nigeria’s convoluted FX regime at the margins, and could provide a slight boost to the government’s oil revenue (we estimate 0.2 percent of GDP at an oil price of $65/bbl), the real impact on Nigeria’s economy is likely to be extremely limited.

“In addition, the renewed bout of confusion surrounding the status of Nigeria’s official exchange rate is yet another potent illustration of the ineptitude with which the CBN has handled changes to Nigeria’s FX regime, sowing unnecessary confusion by flip-flopping and failing to clearly communicate what amounts to mere cosmetic changes.”

He also faulted CBN “Naira 4 Dollar Scheme” which offers a N5 incentive for every dollar received in a bid to boost forex reserves.

According to him, remittances will likely remain subdued given the large gap between the parallel and official exchange rates, which makes it far more lucrative to send money through unofficial channels.

Following Wednesday trading, the difference between the official and unofficial market is now N73.25.

The economist added: “World Bank data points to a further 75 percent decline in Q1, which encompasses the first 26 days of the Naira 4 Dollar Scheme and seems to point to a lack of efficacy thus far.

“Other CBN policies have included a ban on crypto exchanges, the addition of wheat and sugar to the list of imports banned from accessing FX from official channels, and continued calls from the CBN and Governor Emefiele for exporters to repatriate their export proceeds.”

“As usual, these policies fail to address the underlying problem of an overvalued exchange rate and lack of FX supply, instead doubling down on failed policies of capital controls and import substitution.

“Recent changes will do little to address the lack of FX supply and liquidity, with volume on the I&E window remaining subdued. Official reserves have stayed relatively stable this year, giving the CBN some room for further intervention, but FX supply will remain limited without more exchange rate flexibility and we do not see anything to suggest that the CBN will be willing to adopt a more flexible exchange rate regime (a sentiment that was confirmed by our meeting with the IMF last month).”