Uwaleke disagrees, as Osinbajo advocates Naira devaluation

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By Tony Obiechina Abuja

Concerned about the low level of the exchange rate, Vice President Yemi Osinbajo has called on the Central Bank of Nigeria (CBN) to devalue the naira to reflect the present reality of the market.

But economic expert, Prof Uche Uwaleke has disagreed, arguing that the first casualty in event of Naira devaluation will be the 2022 Appropriation Bill, adding that the 2022 budget, which was predicated on N410.15 per dollar is dead on arrival.

Speaking at the midterm retreat of President Muhammadu Buhari’s second tenure, the vice-president said the exchange rate is artificially low, and this is deterring investors from bringing foreign exchange into the country.

“As for the exchange rate, I think we need to move our rates to be as reflective of the market as possible. This, in my own respective view, is the only way to improve supply,” Osinbajo said.

“We can’t get new dollars into the system, where the exchange rate is artificially low. And everyone knows by how much our reserves can grow. I’m convinced that the demand management strategy currently being adopted by the CBN needs a rethink, and that is just my view.

“Anyway, all those are issues that when the CBN governor has time to address, he will be able to address in full.”

The naira is changing for a dollar at 411 at the official side of the market, while the same goes for 565 to the US currency at the parallel market.

Osinbajo suggested that the Central Bank is competing with the fiscal side of the economy, which includes the ministries, departments, and agencies of government.

“There must be synergy between the fiscal and the monetary authority. We must be able to deal with the synergy, we must handle the synergy between the monetary authority, the CBN, and the fiscal side.

“Sometimes, it appears that there is competition, especially on the fiscal side. If you look at some of the interventions, you will find that those interventions are interventions that should be managed by ministries.

“The ministry of industry, trade and investment should handle MSMEs interventions, and we should know what the CBN is doing. In other words, if the CBN is intervening in the MSME sector, it should be with the full cooperation and consent of the ministry of industry.

“Sometimes you will get people who are benefiting more than once because we simply have no line of sight on what is going on, on one side.”

Speaking on surviving the economic challenge of 2020, Osinbajo said Buhari deserves the credit for providing steady leadership through the crisis.

“Let me say on the whole that we have been able to weather the storm of a very very serious economic challenge.”

“I think that is largely on the steady and stable leadership we received from the president. I think if Mr. President had panicked in that period, we would have had a lot of difficulties, perhaps we would be in a much worse situation.

“He deserves the commendation for providing that steady hand when that was required.”

Osinbajo said the country is at a point in our economic history where anything is possible if the country is willing to work together towards the same objective.

However, Uwaleke, Nigeria’s first professor of capital market said in statement on Monday that the first casualty will be the 2022 Appropriation Bill which means that “the 2022 budget, which is predicated on N410.15 per dollar is dead on arrival”.

His statement further reads: “The Vice President obviously means well. But this statement is capable of triggering panic buying and speculation in the forex market (official and parallel) and further complicating things for the CBN.

“No doubt, devaluation will force down the volume of imports and reduce the pressure in the forex market temporarily. But have we thought of the impact it would have on pump price of fuel and the multiplier effects?

“How about the knock-on with regard to inflation and interest rates especially at a time when inflation rate remains elevated? Is high inflation rate not inimical to investments whether local or foreign?

“The argument that naira devaluation will incentivise foreign investors remains to be seen as other factors such as insecurity equally play a part.

“To be sure, the naira has suffered several devaluations in recent past. It has neither solved the fundamental problem of helping to diversify the export base nor curbed unbridled imports. Doing so yet again will not change anything. Rather, it’s a recipe for high poverty and unemployment levels.

“Again, suggesting that the CBN should discontinue its forex demand management strategy to the effect that certain items are excluded from accessing the official window has grave implications for exchange rate and the economy. If anything, it negates the import substitution drive of the present administration.

“The good news is that the CBN has sufficient external reserves to meet genuine demands for forex at the Investors and exporters window. This much we have been told. The CBN should continue to manage it while joining hands with the fiscal authorities to create multiple sources of forex beyond oil.”

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