What Nigeria must do to manage foreign exchange rate better, by Osinbajo

Vice President Yemi Osinbajo has again spoken on the need for effective synergy between the fiscal and monetary aspects of Nigeria’s economy and how to manage the foreign exchange rate better.

He spoke this morning during a ministerial retreat declared open by President Muhammadu Buhari at the State House Conference Centre at the Presidential Villa.

In his presentation, titled: ‘The Buhari Administration: Reflections on the Journey So far’, the Vice President, who detailed some of the game changing achievements of the Federal Government said there are areas of concern in the economy.

According to him, “the first is the synergy between fiscal and monetary policy. The failure of that synergy has led to unnecessary drawbacks in our economic performance and planning. What imports are eligible for foreign exchange must agree with the fiscal ambitions for manufacturing and industry.”

Currently such decisions on import eligibility for foreign exchange, for instance, are being taken solely by the monetary arm, although the fiscal arm would normally be expected to lead in such matters.

Continuing, Osinbajo said: “Our exchange rate management continues to be an issue. The exchange rate of the naira to convertible currencies continues to face significant downward pressure because demand substantially outstrips supply. 

“That is just the reality. On one hand we have tried demand management and rationing, which has not really worked because fixing the price while the parallel market reveals a massive arbitrage, merely creates the opportunity for massive rents. 

“It will also compound the backlog of remittances for foreign businesses who want to repatriate their earnings. The discussion that we must now have and going forward is how best to manage the situation by finding a mechanism for increasing supply and moderating demand, which will be transparent and will boost confidence. 

“I think that a more market driven approach will be best. Some price discovery within the context of a managed float is certainly required. Some efforts at controlled price discovery that had been made in the past include the Foreign Exchange Market (FEM); interbank Foreign Exchange Market (IFEM); various iterations of the Dutch Auction System (DAS); Wholesale Dutch Auction System (W-DAS); and Retail Dutch Auction System (R-DAS).  

“While they may not have been perfect, it would appear as if the rules were clear and there was relative stability. When people know how they can access foreign exchange competitively, this will boost confidence and inward flows will increase.”

MEANWHILE, Buhari gave top marks to his administration, saying the government under his watch implemented high-impact projects across the country, which he said met the yearnings and aspirations of the citizens.

Declaring the event open, Buhari specifically highlighted progress made in the areas of agriculture, economy, infrastructure, security, health and anti-corruption, among others.

The retreat programme was designed to review the progress of the administration, since the second edition held in October 2021.

The two-day exercise is being attended by the immediate past President of Kenya, Uhuru Kenyatta, who is the keynote speaker.

The President told participants and guests that over 3,800km of roads have been constructed across the country, while 38 new aircraft were acquired for the Nigerian Air Force to boost the fight against insurgency.

Buhari said 38.7 million Nigerians have been fully vaccinated against COVID-19, representing 35 per cent of the total eligible population target for vaccination.

He said: ‘’Some of the notable achievements include the completion of the 326km Itakpe-Ajaokuta-Warri rail line and railway ancillary facilities; the completion of over 156.5km Lagos-Ibadan standard gauge railway modernisation project, with extension to Lagos Port, Apapa.

‘’On road projects, this administration has constructed 408km of roads, 2,499km of SUKUK roads and maintenance of 15,961km of roads across the country.

‘’Key among these projects are the construction of 1.9km Second Niger Bridge linking Anambra and Delta States with 10.30km approach road; rehabilitation, construction and expansion of Lagos-Shagamu-Ibadan dual carriageway; the ongoing rehabilitation of Abuja-Kaduna-Zaria-Kano Road, among others.’’