Speaking on the issue to THISDAY on Wednesday, a top presidency
official who preferred not to be named, said the CBN, Federal Ministry
of Finance and Debt Management Office (DMO) had the endorsement of the
presidency in their joint statement reacting to JP Morgan’s announcement
on the delisting of Nigeria’s bonds from its indices starting from
September 30.
The official while acknowledging that JP Morgan had raised concerns
over liquidity in Nigeria’s currency market, he argued that the joint
statement by the finance ministry, CBN and DMO showed that the federal
government was not in support of the devaluation of the naira as this
would lead to a further spike in inflation and to the export of jobs.
He quoted JP Morgan as stating that “foreign investors who track the
GBI-EM series continue to face challenges and uncertainty while
transacting in the naira due to the lack of a fully functional two-way
FX market and limited transparency”.
“However, CBN, the finance ministry and DMO made it clear that it introduced an order-based, two-way forex market, resulting in the stability of the exchange rate in the interbank market over the past seven months and largely eliminated speculators from the market.
“However, CBN, the finance ministry and DMO made it clear that it introduced an order-based, two-way forex market, resulting in the stability of the exchange rate in the interbank market over the past seven months and largely eliminated speculators from the market.
“The CBN also enhanced transparency by mandating that all forex
transactions are posted online on the Reuters trading platform so that
all stakeholders could easily verify all transactions in the market.
“All this was done to ensure that participants are not allowed to
simply trade currencies, speculate against the naira and engage in
round-tripping, but are only in the market to fulfill genuine customer
demand to pay for eligible imports and other transactions.
“Yet, JP Morgan’s preference is for Nigeria to devalue its currency in
the face of falling oil prices and dwindling reserves in order to
satisfy foreign portfolio investors who do not have Nigeria’s interest
at heart,” he said.
The official said if the central bank had succumbed to JP Morgan and
foreign investors’ sentiments, this would have led to a massive
depreciation of the Nigerian currency, leading to import-induced
inflation, exporting jobs, and the continued depletion of Nigeria’s
foreign reserves.
“Lest we forget, there is a high possibility that the US Federal
Reserve could raise interest rates very soon and with the economic
problems in China, foreign portfolio investors will exit the Nigerian
economy without a second glance.
“Should we deplete our reserves now, how will we meet their demands
when they elect to exit the Nigerian market in droves for other
destinations?” he asked
The presidency official added that another major concern for the federal government was the fuel subsidy regime.
“Devaluation at this time will be disastrous because since the fall in
the price of crude oil over a year ago, foreign exchange differentials
alone today account for almost 50 per cent of the subsidy bill that is
paid by the federal government to oil marketers.
“Bank charges and interest rates account for another 25 per cent while
the difference between the actual market price of petrol and the
official price stipulated by government, which is the real subsidy
element, accounts for another 25 per cent of the total subsidy bill.
“So should the CBN devalue, the foreign exchange differential will rise
and put more pressure on the government’s finances,” he explained.
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