Central Bank of Nigeria (CBN) sold $9 billion to forex
dealers through the interbank market between February 21 and August 31 Daily
Trust reports.
The figure was arrived at following a review by this
newspaper of all the official data of FX sales released to the public by the
CBN within the period.
The FX sales were intended to cover for personal and
business travels, medical needs, and school fees, futures market and other
approved transactions.
At the time CBN began massive funding of the FX market, the
naira had lost significant value, trading at over N500/$1 at the parallel
market.
Then rent seeking, speculation and hoarding ruled the FX
market as individuals and banks made fortunes from huge unmerited profits to
the detriment of the naira. The recession was also at its peak as government
revenue plummeted.
The CBN intervention, from the improved government dollar
earnings saw the naira recover to over N485/$1 in early March 2017.
On February 21, when the CBN interventions began, the CBN
offered for sale $370,810,810.79 to 23 banks to meet the “visible and
invincible” requests of customers. At the end of February, the CBN had sold out
some $550,900,000 in interventions.
Over the next six months FX sales by the CBN were as
follows: March; $1,022,000,000;
April, $1,321,860,000; May, N1, 422,800,000; June,
$1,651,500,000; July, $1,638,800,000 and August, $1,301,000,000.
Thus in seven months, CBN had intervened in the FX market to
the tune of $8,908,860,000. Within the period, the naira appreciated from
N520/$1 to N365 to the dollar at the parallel market.
The FX intervention also doused tensions in the FX market
and forced rent seekers out of the market.
But experts wonder whether the cost to the country of nearly
$9bn, against the gains recorded are worth it.
They argue that it is worrying the CBN is funding the market
more than the private sector investors,. The private sector ideally should fund
the FX market more than the Central Bank, they argue.
Prior to Nigeria’s FX crisis, the market was funded by both
the private sector and the CBN.
At the beginning, Nigeria had about $2.7bn foreign
investment from the JP Morgan and $500 million from Barclays but all of these
monies were take out when the CBN tightened controls on the naira.
Nigeria’s external reserve dropped to $28bn and the CBN
couldn’t meet a lot of FX demands such as the repatriation of funds by the
airlines.
To conserve the foreign reserve, the CBN had even stopped
funding BDCs and invisibles in addition to restriction of forex on 41
items.
Mr. Moses Azege, a Lagos based financial expert said, the
CBN intervention was unusual, the market didn’t expect it but it worked in
stabilising the market.
“Before the intervention, the market was volatile, a lot of
profiteering and the banks also got into the business of round tripping” he
said.
He however noted that, the intervention averted the FX
apprehension, and ended business for rent seekers and speculators.
On whether the CBN move was sustainable he said, so far, the
CBN has shown it can sustain it with the level of interventions.
Mr. Rislanudeen Mohammed, the former Ag. Managing Director,
Unity Bank Plc said the “Central Bank intervention over the last several months
has impacted positively in stabilizing the foreign exchange market and reducing
the gap between parallel and black market rates from about N520 to a dollar to
the present rate of about N365.”
The “Forex liquidity has also helped in reducing the impact
of cost push and imported inflation as evidenced by consistent reduction in
core inflation data to present level of 16.05 percent as released by National
bureau of statistics. Introduction of NAFEX has also improved transparency
in the market hence incentivizing foreign portfolio as well as direct
investments” he noted.
However, he explained that “sustaining this intervention is
both unrealistic and impossible in the long term. Note that positive oil price,
improved oil output as a result of reduced sabotage by Niger delta avengers as
well as output quota waiver by OPEC combined to support improved forex income
earnings and consolidating improved foreign reserves despite the intervention
and attendant depletion of the reserve. Those three factors may not last ad
infinitum. To consolidate on success made so far, we need to expeditiously walk
the talk in export income diversification.”
On whether the naira can exchange for N200/$1 in the near
future he said, it is basically a function of demand and supply. But even the
IMF is looking at N365 as the official rate. But it can be determined by market
forces” he said.
Nigeria’s foreign exchange reserves stood at a two and a
half-year high of $31.81 billion as of Aug. 29, the Central Bank of Nigeria
data showed yesterday. The latest figure was at a level it last reached in
January 2015. Experts have attributed the appreciation of the local currency to
the growth in the external reserve and ability of the apex bank to provide
enough FOREX for the market.
By Chris Agabi
