The Central Bank of Nigeria (CBN) has said the non-remittance of dollars to foreign reserves by the NNPC Limited is responsible for naira’s free fall in the official and parallel markets.
This is because the NNPC and its subsidiaries are the sole managers of crude oil, which accounts for more than 80% of Nigeria’s foreign exchange (FX) earnings.
The explanation comes as the Naira traded for N710/$1 on Friday at the parallel market and N415.96/$1 at the official market.
The CBN in a report on Friday, titled: “The forex question in Nigeria: Fact sheet,” which noted that the apex bank does not print dollars, said: “domestically, there has been zero dollar remittance to the country’s foreign reserve by the NNPC.”
The report added: “As noted by the CBN Governor, Godwin Emefiele, monetary policy alone cannot bear all the burden of the expected adjustments needed to manage these difficulties. It’s our collective duty as Nigerians to shore up the value of the naira.”
According to the apex regulator, Nigeria earns foreign exchange from four sources – proceeds from oil exports; proceeds from non-oil exports; diaspora remittances, and Foreign Direct/Portfolio Investments (capital flows).
It further noted that the past six years have been characterised by two recessions triggered by a slowdown in the global economy as well as the effects of the COVID-19 pandemic, heightened by sharp declines in the prices of crude oil, Nigeria’s major source of foreign exchange.
The bank said: “Considering Nigeria’s heavy dependence on oil exports for foreign exchange earnings and government revenue, the impact of the oil market crash severely affected the government’s naira revenue and other macroeconomic aggregates including economic growth. Hence, the rate of exchange between the naira and other currencies has widened over the past few years.”
Domestically, there has been zero dollar remittance to the country’s foreign reserve by the NNPC.
Local and global events
On the economy, the CBN said the pressure on the naira has both local and global perspectives.
“There is un-abating demand for foreign exchange for both goods and services, thereby creating a demand challenge. The current exchange rate of the Naira, like other major currencies, is not driven by cryptocurrencies, given the volatility in the cryptocurrency space, which lost over two trillion in the past two years in face of high inflation,” it said.
The high inflation in other climes and the hike in interest rates have heightened pressures on the exchange rate. This has triggered capital flow reversals from Emerging Markets and Developing Economies (EMDEs) to more advanced economies.
“The United States (U.S.) dollar is gaining against all major currencies of the world. The imbroglio in Nigeria’s tertiary educational sector has triggered an exodus of students from Nigeria schools, with its attendant payment of fees in foreign exchange. Summer travels by Nigerians have also impacted on the demand side of the foreign exchange market,” it added.
Besides, it noted that since Nigeria is not producing, the propensity to import is directly affecting the value of the Naira, which it has tried to address through development finance policies.
Among such policies are the RT200 FX Programme; 100 for 100 Policy on Production and Productivity; Naira4Dollar Scheme; Anchor Borrowers’ Programme (ABP); Export Development Facility (EDF); and the Non-Oil Export Stimulation Facility (NESF).
The CBN said these and many other initiatives were aimed at diversifying the economy, stimulating production, enhancing inflow of foreign exchange, maintaining the stability of the Naira against other currencies, and reducing foreign exchange demand pressure.
There is un-abating demand for foreign exchange for both goods and services, thereby creating a demand challenge.
Currency speculation
In a related development, the CBN has charged Nigerians to be mindful of the speculative activities of some players in the foreign exchange market amid increase in demand for foreign exchange for goods and services.
The Director, Corporate Communications, CBN, Osita Nwanisobi, in an interaction with journalists, reiterated the apex bank’s commitment to resolving the foreign exchange issues confronting Nigeria, and as such, has been working to manage both the demand and supply side challenges.
Admitting to the huge demand pressure for foreign exchange to meet the need of manufacturers and others, Nwanisobi said the monetary authority is strategising to help Nigeria earn more stable and sustainable inflows of foreign exchange in the face of dwindling inflows from the oil sector.
He added that the Bank would continue to make deliberate efforts to avert further decline in the value of the Naira, which he said is being fuelled by speculative tendencies.
