The Senate passed the 2017-2019 medium term expenditure framework (MTEF) and fiscal strategy paper (FSP) retaining the exchange rate of N305 to $1 as proposed by the executive but raised the proposed oil benchmark of $42.50 in 2017 budget to $44.5 per barrel yesterday in Abuja.
The Minister of Finance, Mrs Kemi Adeosun, had said 305 naira is a realistic exchange rate of the naira to the US dollar, blaming the hoarding of the US currency by market speculators for the huge disparities in the foreign exchange market rates. She said the naira was valued between 305 and 315 naira, adding that despite the recession, the national currency should not have crashed above 305 naira. Adeosun made the presentation when she appeared before the House of Representatives Joint Committees on Finance; Appropriations; and Aids, Loans and Debt Management, to defend the projections contained in the 2017- 2019 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) on Monday, 16th January 2017.
She was present at the meeting in company with the Minister of Budget and National Planning, Senator Udoma Udo Udoma; the Accountant General of the Federation, Mr. Ahmed Idris; and officials of the Central Bank of Nigeria (CBN), the Nigeria National Petroleum Corporation (NNPC) and the Federal Inland Revenue Service (FIRS).
“The factors responsible for the declining fate of the local currency are irrational and emotional,” Adeosun told the committee, explaining that the difference between the official and the parallel market rates could not be justified. In reality, the Naira should not be affected more than the N305,” she argued, explaining that this was so because the CBN had put in place measures to stimulate more supply of dollars to deal with its shortage in the market.
Presenting the report, the joint committee chairman, Senator John Enoh, observed that the huge gap between the official exchange rate and what is obtainable in the parallel market had created what he described as several loopholes in the system. He, however, commended the recent migration from fixed exchange rate regime and flexible exchange rate regime but tasked the Central Bank of Nigeria (CBN) to put in place measures meant to close the gap between parallel market and the official exchange rate.
But Senator BEN Murray-Bruce (Bayelsa East) was against the approval of 305 naira exchange rate, describing it as baseless and out of tune with the current realities, bearing in mind that dollar cannot be exchanged at that rate anywhere in the country.
“You have pegged the exchange rate at 305 naira to the dollar. Now, this is fine, however, nobody in this room today can go to the bank and buy the dollar at 305 naira and so, we have an exchange rate that is ridiculous. The black market is about N500 and it is only about 200 naira differential. Between 1960 and 1980 despite the civil war, when (Chief Obafemi) Awolowo was federal Commissioner for Finance, the country was moving on without borrowing a penny. In the exchange rate between the official and black markets, there was no differential. In 1980, it was $1.97cents to the Naira and the difference between official and black market was 10 kobo.
“When (Shehu) Shagari was overthrown in December 31st in 1983, the official rate of exchange was N3 to the dollar and the black market was N4 to the dollar. So, it was a 1 naira differential. Three years ago, it was a 10 to 15 naira differential between the black market and the official rate.
“Today, it is 200 naira and so, it is better for businessmen to round trip than to manufacture. The point I am making is that the exchange rate we have is encouraging round tripping. When the exchange rate encourages round-tripping, we will never close the gap because the richest people in Nigeria today are treasurers of banks. The exchange rate is wrong. 305 naira is unrealistic and that is the point I am making.
“The currency should float and it has been floating since independence and for it not to float means that the naira will never be strengthened. For the past two years, the naira has consistently been devalued from 225 naira to 500 naira. Let us address the issue of foreign exchange. Please, let it float,” Murray-Bruce pleaded.
CBN’s reluctance to relinquish its oppressive monopoly in the forex market is responsible for the wide disparity between official and parallel market rates. The CBN’s monopoly of forex sales triggers widely divergent prices in the forex market because it controls over 80 percent of dollar sales. The gap between official and parallel market rates will remain widely divergent, so long as the deliberately created fundamental market distortions continues.
As long as the CBN continues to deliberately auction small rations of dollars, in a market which is undeniably suffocated with naira surplus liquidity, it will be virtually impossible for the naira exchange rate to be stronger (even if the price of crude oil rises to $200/barrel) and the gap between black market and official rate will always remain fairly wide apart.
