CBN Tackles The Economist Magazine Over Comment On Forex Management

THE Central Bank of Nigeria (CBN) has described as misplaced criticisms by The Economist magazine of its latest handling of the forex market situation in the country, which seems to have resisted every prescription to keep it under control and save the naira value.

First, the CBN shut off the parallel market segment, which was believed to be unofficially setting the exchange rate, and directed that all forex must be obtained only at the interbank market.

This option seemed not to have worked, as it resulted to a spike in the exchange rate, thus dealing a blow to the value of the naira. Then the apex bank went ahead to ban a list of about 43 items whose importation must not be funded from the interbank forex market, because there are goods that are locally produced, with some possessing more quality than the imported ones.

This latest action drew the ire of The Economist, which described the action as jittery, and a “toothpick alert.” Its position has unsettled the Nigerian apex bank, which has prompted a response and declaration that the conclusion of the magazine was in bad faith and driven by anger, following Nigeria’s attempt at reconnaissance aimed at repositioning itself as a sovereign nation through the mobilisation of domestic resources, as oppose to importation.

The CBN Director of Corporate Communications, Alhaji Muazu Ibrahim, wrote: “The attention of the CBN has been drawn to your recent article, titled, ‘Toothpick Alert,’ in the print edition of July 4.

“First, the article seems to ignore the fact that the exchange rate is simply a price that is essentially determined by the forces of supply and demand.

“The CBN believes that the 48 per cent decline in oil prices may not be transitory and made bold policy changes, including closure of the subsidised Official FX Window, which resulted in a 22 per cent depreciation in the currency, the naira.

“Because the Nigerian economy is heavily dependent on imports and the exchange rate pass-through to inflation is high, we believe this adjustment is optimal at this time.

“Contrary to the article’s argument, adjustments to a sharp decline in supply of US Dollars cannot all be borne by an indeterminate depreciation without considering the full impact on the Nigerian economy.

“The demand side also has to be considered, not just in response to the pressure on the naira, but as an opportunity to change the economy’s structure, resuscitate local manufacturing and expand job creation for our citizens.

“Take rice imports, for example. Why should we keep allocating scarce FX to rice importers when vast amounts of paddy rice of comparable quality produced by poor, hardworking local farmers across the rice belts of Nigeria are wasted and farmers are falling deeper into poverty, while we export their jobs and income to rice producing countries?”  Muazu recalled that few decades ago, Nigeria was one of the world’s largest producers of palm oil, but today, it imports nearly 600,000 metric tones.

He regretted that today, Indonesia and Malaysia, who were on the same economic ranking, combine to export over 90 per cent of global demand. He stated that under these circumstances, the CBN will do the little it can to protect the jobs and incomes of local farmers, using some of the same principles Western economies use to justify the protection of their farmers through huge subsidies.

If the article believes the CBN should adjust to reflect the current parallel market rate, why was this suggestion not made in the week following the inauguration of President Muhammadu Buhari, when the same rate fell sharply to under N190 per dollar, it queried. Pointing out that the CBN does not panic and will not take desperate measures to satisfy few misguided interests in the market, Muazu then restated the apex bank’s stance.

He continued: “The CBN believes that Nigeria cannot attain its full potentials by importing anything and everything. “For far too long, this trend has significantly weakened the operating capacities of our industries, but now is a good opportunity to begin a reversal.

“Although the article hastily derides this idea as lacking in economic foundations, it is the same principles upon which many other countries do not allow importation of certain products.

“Furthermore, it appears condescending to suggest that the list of items seemed ‘to have been drawn up by someone wandering around a house and a building site.

“On the contrary, items were only included after thorough and exhaustive discussions at the highest policymaking body of the bank with the strategic national interest of Nigeria. “Like other oil-exporting countries, Nigeria is grappling with its share of the aftermath of the oil price decline. “Despite this, our economic fundamentals remain strong.

Inflation is still within the CBN’s single-digit band, the exchange rate has stabilised around N197 per US Dollar for the last five months, GDP expanded by four per cent in the first quarter of 2015, and 469,070 new jobs were created in the same quarter.

“With ingenuity and productiveness, we believe that Nigerians will seize this opportunity and use it for the greater good of the country. “As we transition into a new administration in Nigeria, we must continue to ensure policy stability at all times.”