..Says it’ll hurt economy
The Director-General, Lagos Chambers of Commerce and Industry, Mr. Muda Yusuf, has said that an arrangement which makes the Central Bank of Nigeria the sole supplier of the forex to the economy is not sustainable and will eventually hurt the economy.
Yusuf, who spoke exclusively with The Point, explained that although the recent series of intervention by the CBN in the forex market had brought some relief to the private sector, the monopoly over forex would discourage investors.
“We have seen a considerable improvement in the forex liquidity, the exchange rate depreciation has moderated; the anxiety in the economy had been tempered and hope of economic recovery has been rekindled.
“The forward supply by the CBN has been reduced from 180 days to 30 days, and even less. The window for SMEs of quarterly allocation of 20,000 dollars is also cheery, but there are concerns over the sustainability of these gains. The reason is that these developments are not rooted in any fundamental policy reforms. It is simply a reflection of the boosted capacity of the CBN to support the market. This poses a major risk of sustainability,” he stressed.
According to him, the present CBN strategy has some implications for the economy. “Recent improvements in the exchange rate are of doubtful sustainability; the much needed investors’ confidence may remain muted as the foreign reserve is exposed to the risk of rapid depletion. The country may lose another opportunity to rebuild its reserves. Activities of speculators will continue as uncertainty persists in the forex market,” Yusuf said.
The LCCI boss emphasised that to consolidate on current gains in the forex market, all forms of restrictions on inflows should be removed.
“Without prejudice to mechanisms put in place to curb money laundering, the supply side of the forex equation needs to be urgently liberalised, especially from autonomous sources,” he said. He noted that the CBN could guide the rates, but should not fix it.
“The exchange rate should reflect the demand and supply fundamentals. An arrangement which makes the CBN the sole supplier of the forex to the economy is not sustainable and will hurt the economy ultimately.
A market-driven rate will boost investors’ confidence, enhance autonomous inflows, reduce uncertainty in the forex market and reduce speculative activities. Currently, speculative activities still thrive because of uncertainty,” he added.
In an earlier interview with The Point, Yusuf had said there were two angles to the foreign exchange problems in the country.
“There is the currency depreciation, which is affecting a lot of businesses because the economy is still import dependency. There is also a major liquidity crisis in the foreign exchange market,” he cautioned.
