Yemisi Izuora
A Financial Economist, Dr. Uche Uwaleke, has said that increase in domestic production will enhance economic and foreign reserve growth, which will encourage conservation of the foreign exchange.
Uwaleke, an Associate Professor and Head of Department, Banking and Finance of Nasarawa State University, Lafia
while speaking at a seminar organized by the Central Bank of Nigeria, CBN, for financial journalists on “Monetary Policy in a Period of Economic Uncertainty” in Sokoto State, observed that Nigeria is not only a mono economy, but it’s foreign reserves is derived mainly from the proceeds of oil, with little from diaspora remittance, and foreign investments.
He therefore expressed worry over the drop in the foreign reserve, as a result of unfavorable development in the international oil market, due to price decline, insecurity in the oil producing region and high import duty.
He further said that economic growth is measured by GDP, and if there is a decline in foreign reserve, there will be decline in GDP and growth.
According to NBS Q4 result, about 30 percent of Nigeria’s forex demand is spent on petroleum import, and that over N2 trillion was spent on petroleum products import in 2016.
He said that if we can tackle domestic production a lot of foreign exchange will be conserved and economy will grow.
Uwaleke also charged the Federal Government to ensure that the proceeds of the Eurobond is judiciously utilized as investors are more concerned about the interest they would get on their investments more than what the investments was used for, and that Nigerian Eurobond was oversubscribed despite downgrades by rating agencies because investors saw a better yield as opposed to what they would get in europen markets.
He said Nigeria is due to pay $500 million next year when the five year Eurobond raised in 2013 matures.
He stated that Nigeria will have to pay back the $500 million although there was no specific project which the fund raised was used for.
“I looked at the budget implementation report starting from 2013 up till now and the latest budget implementation reports on the website of the budget office in first quarter of 2016, and I cannot place my finger on what was done with the Eurobond that was issued in 2013 which we will have to repay next year.
“We can’t trace it. The $500 million we did in 2011 was just meant to test the world market. But again we need to see what it was used for.”
Making case for consessioned funds from institutions such as the World Bank and International Monetary Fund (IMF), Uwaleke said “when investors give you money they don’t care what it is being used for as opposed to the consessioned ones you get from the world bank and IMF by tying the loans to projects and that is why I am in favour of consessioned loans.”
Noting that the Eurobond cost was high for Nigeria, he said investors would take the risk if the country raising the bond is oil producing and the yield is high. He noted further that another factor for the success of the Eurobond was the rising foreign exchange reserve of the country.
“If we didn’t have a reserve, this Eurobond outing wouldn’t have been a success because all those investors are looking at your reserves” he stated even as he urged the country to focus more on accumulating its reserves before deciding to fully float the currency.
According to him, Nigeria needs a minimum of $32 billion in reserves which will be comfortably enough for seven months of imports before it floats the currency. Querying the school of thought that says the CBN should allow the market determine the value of the naira, he said the supply of forex is yet to be enough to leave the currency to market forces.
He charged the monetary authorities not to succumb to pressure saying Egypt which succumbed to pressure has seen its currency devalued more than envisaged. “If we don’t have this $32 billion, we shouldn’t be thinking of floating the currency.
“Egypt was advised not to float the currency until they got to $25 billion reserve but because Egypt was pressured and in a hurry to get $12 billion IMF loan they did the currency float much earlier and they have now seen the outcome. So when people say Nigeria should float, why don’t we look at what happened elsewhere.”