3 Reasons CBN Will Not Leave The Naira To Market Forces In 2018
After crude oil prices took a hit in the global oil market, Nigeria’s currency, the Naira, took a major blow that saw it reduced to almost nothing.
The Central Bank of Nigeria, CBN had to step in to save the currency from total collapse.
Since then, series of dollar injections into the economy totaling about $8 billion since February 2017 have helped the CBN to strengthen the naira.
The Naira has been making a serious recovery against the American dollar closing at 363 naira per dollar on Tuesday as against the 500 naira per dollar that it was when the CBN started intervening in February.
While this looks like a perfect solution, some policy analysts, economists and other experts believe Nigeria has just postponed the evils days.
They argue that the CBN should allow the naira to find its true value to attract investors.
One of those who believe Nigeria is making a mistake is the International Monetary Fund, IMF. IMF said in its October World Economic Outlook’s focus on Nigeria that there are “concerns about policy implementation, market segmentation in a foreign exchange market that remains dependent on Central Bank interventions (despite initial steps to liberalise the foreign exchange market)”.
Despite these concerns, here 3 reasons the CBN will not likely allow the Naira to find its value in 2018.
1. Unpredictability Of Market Forces: Although the CBN plays a critical role in the foreign exchange market, it cannot predict where the market forces will leave the naira. So, there is fear of the effects of a massive fall in the Naira on investor outlook.
“It's safer to retain a false safety. Current Government intervention creates a situation that even though not liked many market forces theorists, provides a level of certainty that allows investment to continue to come into our economy,” said Economist and PR Strategist, Ifeanyi Abraham in a chat with Bounce News.
According to Abraham, “Government is shielding the market and economy from the true rot/situation of things getting exposed. Putting off the evil days while trying to repair certain things. I call it a band aid approach of Government - a deeper infection that lies in the body but while trying to treat the wound, continuing to cover it up.”
“For the Naira to truly rise, the real sector- Manufacturing, productions need to be at a capacity that can exchange foreign currency for goods and services, especially with oil not at a position to continue to shield us,” he added.
2. Protection Of What The Government Has Identified As Key Industries: “This is a bit tricky,” continued Abraham.
“It speaks to an existing oligarchy. A few that have been marked out as critical to the stability of the country at the political and economic levels.”
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So, you have certain individuals who government considers their businesses so critical that they are afraid of implementing some policies that may affect their businesses negatively, even if that policy will eventually lead to the general good.
3. Fear of Losing 2019 Election: The election year is almost upon Nigeria. And with President Buhari’s government gearing up for reelection, they would consider any devaluation of the naira ill advised.
This is more so because allowing the naira to find its true value only has long term advantage – a long term that the government cannot afford.
Besides President Muhammad Buhari is an opponent of devaluation, so it probably won’t happen in his time.
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