Nigeria’s Organised Private Sector, OPS, has raised concerns about the divergent positions of both the fiscal and monetary authorities regarding the country’s foreign exchange framework.
The sector said the seeming lack of cohesion among policymakers is sending negative signal to the investment community and further worsens uncertainty thus dampening investor confidence.
Reviewing the State of the Economy in Lagos on Wednesday, Toki Mabogunje, president of the Lagos Chamber of Commerce and Industry, LCCI, said that it has become imperative for the fiscal authorities, the Central Bank of Nigeria, CBN and Economic Advisory Council to be on the same page as far as the country’s foreign exchange policy framework is concerned.
“We reiterate our position that Nigeria’s foreign exchange policy framework needs to be reviewed to expand the scope of market mechanism in the determination of exchange rate.
“It is critically important for policymakers to harmonise the multiple exchange rates into a single market-reflective rate, which is imperative in strengthening investor confidence and engendering macroeconomic stability.
Unification of exchange rates would complement recent efforts by the CBN geared at enhancing liquidity at the supply segment of the foreign exchange market. Ensuring clarity on the country’s foreign exchange policy direction among participants in the investment environment is even more imperative in attracting private investments into the economy.” Mabogunje said.
She stated that many investors in the economy, including those in the real sector are lamenting the difficulties in accessing foreign exchange for importation of raw materials, equipment and some critical inputs for production and processing. This is in-spite of the notable recovery in crude oil prices.
This situation she observed is a taking a huge toll on capacity utilisation, business turnover, sales, and profitability, warning that “Sustainability of some of these investments are currently at risk with dire implications for retention of jobs. All these underscores the need to review the current foreign exchange management model.”
Reviewing the country’s Monetary Policy Development, the Chamber notes the decision of the Monetary Policy Committee of the Central Bank of Nigeria to retain Monetary Policy Rate (MPR) at 11.5 per cent, Asymmetric Corridor around the MPR at -700/+100 basis points; Cash Reserve Ratio at 27.5 per cent and Liquidity Ratio at 30 per cent during its March 2021 meeting.
Mabogunje, appreciated that the committee was faced with a policy dilemma as it tried to strike a balance between stimulating growth and curbing intensifying inflationary pressures.
According to her, considering recent developments in the economy, holding policy stance seems to be most appropriate decision at this moment pointing that the Chamber understand that the bank’s policy focus currently anchors on output growth given that the economy narrowly exited recession in the fourth quarter of 2020. However, it noted that economic growth remains fragile with weak employment levels in the manufacturing and services sector and therefore advised that tightening monetary policy stance would stifle access to credit and undermine the pro-growth agenda of the CBN.
Continuing, she added that the policy tightening regime would have a muted impact on domestic price growth as major inflationary drivers are basically cost-push factors.
“We expect the impact of the bank’s intervention to be limited on the real economy on account of several structural bottlenecks stifling productivity in these sectors. We endorse the position of the MPC on need for fiscal authorities to expedite actions in addressing the structural challenges and other investment climate issues fuelling inflationary pressures. Deliberate attempt at addressing these constraints would make the bank’s developmental finance agenda more impactful on real sector productivity.
“Looking forward, we believe 2021 first quarter GDP performance will influence the committee’s decision at its next meeting in May. The Lagos Chamber enjoins the committee to give more attention in its deliberations to the country’s foreign exchange policies as foreign exchange framework is key to its price stabilization mandate.” Mabogunje stressed.