₦airaland Forum

jayloms:
I have read quite a number of Boyo's write up and in each of them he never fails to mention that the naira equivalent of our dollar earnings is printed to fund the federation's account.

Now Sir, are you absolutely sure the Cbn doesn't print the naira equivalent to fund the fed's acct cause I'm wondering why he(Boyo) would make such a grave mistake which is pivotal to his suggestion.

I'm interested in your views cause the last thing I want, is to be backing a suggestion based on a faulty premise.

Many thanks as you illuminate my understanding.

989900:
Not printed; substituted (if the gov't has the equivalent they provide it's equivalent to the various entities).
I explained it on another thread I'd look for it once I return.
It doesn't mean they don't print though when needed.

Activa:
The cbn does not print naira for the states. I've explained that above. Boyo didn't get that right at all.

Saying that cbn should give dollar certificates to states is akin to telling cbn to issue dollar certificates to other exporters.

One thing that Boyo is saying though, albeit in a complex manner, is that the determination of the exchange rate should be more flexible.

jayloms:
I have read quite a number of Boyo's write up and in each of them he never fails to mention that the naira equivalent of our dollar earnings is printed to fund the federation's account.

Now Sir, are you absolutely sure the Cbn doesn't print the naira equivalent to fund the fed's acct cause I'm wondering why he(Boyo) would make such a grave mistake which is pivotal to his suggestion.

I'm interested in your views cause the last thing I want, is to be backing a suggestion based on a faulty premise.

Many thanks as you illuminate my understanding.

jayloms:
Please do Sir. I'll be looking forward to your mention on this. Many thanks for clearing that up.

seunmsg:
Exporters have the choice to receive their earnings either in dollars or in Naira I want to believe. If that's the case, why should CBN be the sole decider of how federal, state and local governments receive their revenue?

Why can't we try Boyo's idea of dollar certificate? To me, I think his idea is worth trying. It can even help curb corruption to a certain extent. We will have a situation where dollars will be chasing the naira and CBN will settle any dollar requirement of state government on their behalf.

seunmsg:
SOME officials of the International Monetary Fund recently consulted with relevant government agencies to assess the economic impact of the crash in oil revenue and the planned responses for addressing the ‘’near-term vulnerabilities’’ and those fundamental reforms required to sustain inclusive economic growth and reduce poverty.

The team’s recommendations reflect the self-evident need for reforms, which would improve fiscal discipline and reduce imbalance between our export and import values. Also, the report of February 24 re-echoed the need to broaden the tax base and implement measures to boost the ratio of non oil revenue to Gross Domestic Product.

The IMF advised that sustained private sector-driven growth requires a competitive economy, which can evolve with an exchange rate policy that is allowed “to reflect market forces”. It recommended that ‘’restrictions on access to foreign exchange” should be removed.



Although the IMF acknowledges that the Central Bank of Nigeria “lately eased monetary conditions”, the team, however, observes that there is still a ‘’need to ensure a strong and resilient financial sector that can support private sector investment across production segments (including SMEs) at reasonable funding cost’’, these recommendations simply repeat the same old self-evident prescriptions without defining the appropriate supportive medium that would guarantee a cure. For example, if you have not identified the antidote to the poison of systemic surplus naira, how can you restrain inflation and bring down the cost of funds from a clearly prohibitive 20 per cent plus to ‘’more reasonable’’ and supportive 4 -7 per cent interest rate levels that would facilitate industrial consolidation and rapid job creation.

Surprisingly, the IMF report inexplicably shifts attention from the albatross of ‘liquidity surplus’ that undeniably fuels inflation well beyond best practice models below two per cent. Or is there an unwritten law that countries like Nigeria must not also enjoy minimal inflation and truly catalytic low interest rates below six per cent to facilitate inclusive economic growth? Surely, it is not so difficult to understand that all static income earners, particularly, pensioners and other lowly paid workers will expectedly lose 50 per cent of the purchasing value of their income every five years, if inflation continuously trends closer to double digit rate.

Indeed, if the IMF team sincerely expects sustainable inclusive growth for Nigeria, there is no way they would have failed to examine the persistent cause of the systemic surplus naira, which forces the CBN to regularly commit to reckless. Some would say fraudulent, financial mismanagement to fight inflation when it compulsively sets out to restrain borrowing and consumer demand by marginally reducing the persistent irrepressible liquidity challenge, with unreasonably high interest paid on funds which CBN borrows and simply stores as sterile and idle deposits.

Not surprisingly, the banks earn over N500 billion annually from this scam!

Similarly, it is the same threat of inflation that instigates the CBN’s self-flagellating double digit Monetary Policy Rates in place of more supportive rates below two per cent adopted by Monetary Authorities in disciplined and more successful economies.

Instructively, however, if IMF’s recommendation for the ‘’removal of restrictions on access to foreign exchange’’ was adopted, the naira exchange would have since plummeted below N1000 per one dollar with serious economic and social consequences. In such event, the World Bank would step up to advance Nigeria,a dollar denominated loan, with shylock terms, to defend the naira. Regrettably, the Nigerian economy would ultimately unravel and the naira rate will unfortunately track the Ghana cedi, which eventually exchanged for over 10,000 cedi to one dollar with no respite in sight.

Nevertheless, the IMF’s recommendation that the exchange rate should be allowed ‘to reflect market forces’ may seem credible and progressive. The reality, however, is that the naira rate will continue to have absolutely no chance against the dollar if the money market remains deliberately skewed, as it is, with persistently surplus naira liquidity against rationed dollar auctions. The CBN’s monopolistic dollar auctions to banks is certainly not commercial best practice and unfortunately, deliberately provides wide latitude for forex market malpractices in banks.

It is inconceivable that the counterproductive impact of the CBN’s stranglehold on forex supply escaped the notice of the IMF team, despite their advocated faith in competitive market forces for economic growth. Clearly, if the CBN retains its distortional monopoly of dollar supply, serial naira devaluation will, as usual, become inevitable, and ultimately not even a steady rise in crude prices will save us. After all, the naira rate inexplicably remained between ‘weak and static’ even when reserves bountifully approached $60 billion when the oil market was fortuitously very buoyant for several years.

Devaluation does not hold any promise for Nigeria other than the obviously misguided and unrealistic expectation that matching official with parallel market exchange rates will attract foreign investors or ensure competitiveness of the Nigerian economy. Conversely, naira devaluation from 0-50kobo before 1979 to the present N310 to one dollar did not attract much more than about $20 billion in foreign investments, that is a paltry annual average of $540 million. Worse still, foreign investors were ‘smart’ enough to invest primarily in economically and minimally impactful but high-yielding Nigerian government’s bills and bonds!

The unusually wide gap between the official and parallel naira rates may have intuitively engendered the observation that Nigeria’s economy will only become competitive if the naira is devalued and brought closer to the street market rate. Instructively, however, despite series of naira devaluation, Nigeria’s economy remains neither diversified nor internationally competitive. Maybe, as suggested, a further devaluation to N300 per one dollar may just change our fortunes. But, such an expectation must be predicated on the parallel market rate remaining stable. Consequently, if the root cause of the deliberate market imbalance against the naira is not squarely addressed, while the street market rate continues to climb, the call for further devaluation beyond N300 to one dollar will again become clarion from misguided and self-serving experts.

Fortunately, President Buhari is not fooled by the false promises canvassed by advocates of devaluation. The President is sharply aware that the intensity of deepening poverty in Nigeria correlates with the naira’s steady depreciation, even with bountiful reserves.

Buhari certainly recognises that devaluation instigated and has sustained our economy’s debilitating brain drain and the mass migration of our youths to greener pastures.

Besides, another major devaluation will only precipitate Labour’s agitation for wage increases, while pension incomes will invariably gradually become valueless. Furthermore, the inflationary spiral instigated by a major devaluation will further reduce consumer demand and adversely affect investment decisions, with collateral damage for job creation; increased raw material costs and high cost of funds will similarly make imports cheaper than Nigerian products.

Additionally, Nigerian holders (including government) of dollar denominated loans may require 50 per cent more naira to service and repay their debts, while the increased cost of critical plant and equipment will adversely challenge the implementation of the capital budget and may further deepen the projected over 30 percent 2016 budget deficit. Invariably, the operations of critical subsectors such as power, aviation, oil and gas will also be severely challenged if the Naira suffers further devaluation.

If the dollar sells officially for N300 to one dollar and above, fuel price will spiral beyond N130 per litre and make deregulation and the saving of over N1trillion annual fuel subsidy impossible. Sadly, Nigeria’s celebrated Gross Domestic Product of $510 billion will invariably also shrink below $300 billion, while the current stock market capitalisation of about $42 billion will similarly recede below $25 billion and make the market vulnerable to an easy take over by foreign portfolio investors. In short, poverty will deepen nationwide.

In the above circumstances, Buhari must be encouraged to resist further devaluation and save the naira by finding an antidote to the poison of Excess Liquidity.

http://www.punchng.com/devaluation-imf-versus-buhari/

jayloms:
I have read quite a number of Boyo's write up and in each of them he never fails to mention that the naira equivalent of our dollar earnings is printed to fund the federation's account.

Now Sir, are you absolutely sure the Cbn doesn't print the naira equivalent to fund the fed's acct cause I'm wondering why he(Boyo) would make such a grave mistake which is pivotal to his suggestion.

I'm interested in your views cause the last thing I want, is to be backing a suggestion based on a faulty premise.

Many thanks as you illuminate my understanding.

989900:
Meanwhile, thru all this, no Naira is substituted for dollar causing excess liquidity, which the CBN later has to mop up by borrowing money it does not need at high interest rates from the banks.

989900:
However, the Naira, importers, and everyone wins, because the Naira will appreciate -- less pressure/demand from monthly chase of dollars by government establishments!

Activa:
How exactly will it lead to naira's appreciation?

It's a zero sum game. The dollar that states would have access to is what importers would no longer have access to.

Activa:
Please explain how this happens step by step.

How can there be excess liquidity when what the cbn is doing is to simply use the naira from importers to credit the states?

Activa:
1. Exporters today either use their usd for eligible imports or receive the naira equivalent at the official rate.

2. States don't need dollar certificates. They can open dom accts and be treated like exporters.

3. But you see, states hardly spend in usd. Their expenditure is largely in naira.

4. The main gist of Boyo's idea, as I explained earlier, is exchange rate flexibility or, if you want, a depreciation of the naira.

5. The current system whereby cbn is in charge of all usd receipts is what is preventing the scenario in 4 above.

bellyjean:
You just asked the most sensible question... honestly, this should be what our Govt/CBN in all capacity should do. These commercial banks are very lazy, since our mumu government (most especially previous ones from IBB to GEJ) gave them an easy way of making fat profits. Government sold bonds and T-bills to these lazy Commercial/financial/security/equity institutions. They would rather invest in Govt bonds than service the real economy by giving loans to local manufacturers/producers/Entrepreneur; because of the great interest rates and low risks associated with them

So invariably, our commercial banks are just banks for the government and the lazy rich who just want their monies to keep increasing with little or no efforts

If these Commercial banks are made to do the real work they are supposed to do, the real sector will get the boost it needs because apart from providing capitals (loans etc) they will also offer pro-bono services such as risk assessment and management etc. This would increase the chances of business survival. At the end, their loan is repaid, and the business is sustainable and waxes stronger

Now is the time for real work.
God bless Nigeria.

Bevista:
I disagree with giving state governors dollars. Most of the dollars will be looted and wired out with no value to the Nigerian economy. Also, that will leave very little dollars left in the Federation Account, with a lot of negative consequences too many to discuss here.
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However, he's spot on as regards this writeup. First time I have to agree with his analysis.