Following the latest World Bank report on the impacts of the Central Bank of Nigeria’s (CBN’s) management of the foreign exchange regime, industry stakeholders have insisted that the country’s apex financial institution is on the right track as its different interventions on the economy are yielding positive results.
The World Bank in its bi-annual Nigerian Development Update, a report published twice yearly, had called on the federal government to ensure transparency in its economic recovery policy.
According to the World Bank, the central bank’s management of the exchange rate reduced supply in the market thus affecting investor confidence.
In the report which is titled, “Resilience through Reforms”, the World Bank said despite signs that the country’s economy has started to grow again, prices have continued to increase rapidly, severely impacting Nigerian households.
The report which was released in Abuja on Tuesday noted that as of April 2021, the inflation rate of 18.12 per cent was the second-highest in four years after attaining 18.17 per cent the previous month.
Food prices accounted for over 60 per cent of the total increase in inflation, with rising prices pushing an estimated 7 million Nigerians below the poverty line in 2020 alone.
The report acknowledged notable government policy reforms aimed at mitigating the impact of the crisis and supporting the recovery, including steps taken towards reducing the subsidy levels for petroleum products imports and supply and adjustments in electricity tariffs towards more cost-reflective levels.
The report also highlighted both the Federal and State government’s efforts to cut down on non-essential spending and redirect saved resources towards the COVID-19 response.
However, there were indications of positive growth for the Nigerian economy as the National Bureau of Statistics (NBS) had earlier in the day said that the nation’s inflation rate has further dropped to 17.93 per cent.
This shows a positive growth from the 18.12 per cent recorded in April.
From the first quarter of 2021, inflation has spiked from 16.47 per cent in January to 17.33 per cent in February, 18.17 per cent and 18.12 per cent in March and April.
The Consumer Price Index report released by the NBS on Tuesday shows food inflation plunged to 22.28 per cent in May compared to the 22.72 per cent recorded in April.
“This rise in the food index was caused by increases in prices of Bread, Cereals, Milk, Cheese, Eggs, Fish, Soft drinks, Coffee, Tea and Cocoa, Fruits, Meat, Oils and fats and Vegetables,” said NBS.
The Core inflation, which excludes the prices of volatile agricultural produce stood at 13.15 per cent in May 2021, which is a rise of 0.41 per cent when compared with 12.74 per cent witnessed in April 2021.
However, the the different interventions of the CBN on the economy are yielding positive results on the economy.
Speaking to The Daily Times on this development, a finance expert, Prof. Uche Uwaleke, said that it’s possible that the interventions by the CBN in the agric value chain are beginning to bear fruits, as food inflation is easing.
He, however, cautioned that with rising insecurity, and a likely hike in the pump price of fuel and electricity tariffs, it is doubtful whether the downward trend in headline inflation rate will be sustained.
The Director-General of Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, on Tuesday said: “We welcome the deceleration of headline inflation from 18.12 per cent in April to 17.93 per cent in May 2021, year on year. This represents a marginal decline of 0.19 per cent.
We note the marginal drop in the Food Inflation sub-index from 22.72 per cent in April to 22.28 per cent in May 2021. However, the core inflation sub-index accelerated to 13.15 per cent in May from 12.74 per cent in April 2021.”
He, however, noted that the drivers of inflation had remained largely the same and are mainly supply-side issues.
These include the security situation, cost of transportation and logistics, energy costs, exchange rate depreciation, illiquidity in the forex market, climate change, among other variables.
But the president, Association of Bureaux De Change Operators of Nigeria (ABCON), Alhaji Dr Aminu Gwadabe had identified Forex speculators as the problem, even as he said that the CBN has continually funding the BDCs.
He, therefore, said that foreign exchange speculators will lose a huge amount of their fortune (over N100 billion monthly), because the apex bank has sustained massive funding for Bureaux De Change (BDC) operators.
According to him, the CBN is committed to improving funding for over 5,000 BDCs nationwide in a new move to deepen market liquidity and protect the naira against speculators.
He called for the return of normalcy to the market as the ongoing speculative behaviour hampering the market operations and stability will come at huge loss to speculators.
The ABCON boss linked the continued fall of the naira at the parallel market and Investors’ and Exporters’ (I&E) Forex window to currency speculators hoarding dollars to profit from the currency crisis.
He said the perpetrators are creating an artificial scarcity of the greenback within the market to cause more woes for the local currency.
Gwadabe said the ABCON Management and the CBN-licensed BDCs will fight alongside the regulator to ensure that speculators lose their capital should they persist in the illegal activity.
Although, the World Bank report noted an improvement in public-sector transparency, particularly around the operations of the oil and gas sector, with the Nigerian National Petroleum Corporation (NNPC) continuing its policy of publication of accounts of activities and earnings.
The report underlined the critical importance of a clear policy on exchange-rate management by the monetary policy authorities, trade and fiscal policy, as well as social protection of the poor and the vulnerable.
Specifically, the report recommended increased transparency and predictability of exchange rate management policies to reduce distortions in allocations in the private and public sector; and to ensure agents can access foreign exchange in a timely and orderly manner, at an approved rate.
Meanwhile, CBN Governor Godwin Emefiele in his seven years in office, apart from aggressive development finance function by intervening in different sectors of the economy, has been promoting price and monetary stability, exchange rate stability, financial system stability as well as spur growth through interventions.
In his second year in office inaugural speech, he said: “You will recall that during my maiden address on June 5, 2014, I stated that my vision would be to ensure that the CBN is more people-focused, as its policies and programs would be geared towards supporting job creation, reducing the high level of Treasury-Bill rates, improving access to credit for MSMEs, deepening our intervention program in the Agricultural Sector, building a robust payment system infrastructure that will help drive inclusion, in addition to key macroeconomic concerns such as exchange rate stability, financial system stability and maintaining a strong external reserve.”
He has in the last seven years tightened the monetary policy rate to rein in inflation, created an Investors and Exporters Window which allowed exporters and investors to inflow and sell their foreign exchange at the prevailing market rate.
To reduce reliance on the importation of items which could be produced in Nigeria, the CBN in the last seven years has maintained pressure in the restriction of access to foreign exchange on items that can be produced locally, while deploying intervention funds to support growth and productivity in the agricultural and manufacturing sectors.
“These measures helped to support the attainment of our monetary policy objectives such as a reduction in the inflation rate, stability in our exchange rate and improved accretion to our external reserves,” he had said.