The devaluation of the naira, if implemented as suggested by Vice President Osinbajo will have grave consequence for the execution of the 2022 budget, the Association of Capital Market Academics of Nigeria has said.
The President of the ACAMB, Prof Uche Uwaleke, said this during a chat with journalists on Tuesday in Abuja.
Uwaleke was accompanied to the media briefing by Barrister George Ibekwe who is a lecturer at the Nigerian Law School; and Dr Huseini Mohammed, a Non-Executive Commissioner on the Securities and Exchange Commission Board.
They spoke on the 2022 budget proposal, the eNaira project of the Central Bank of Nigeria, and the role of the capital market in raising finance for the budget among other issues.
Osinbajo had on Monday criticized the Central Bank of Nigeria’s foreign exchange policy and advised the bank to adjust the official exchange rate of the naira in a realistic manner that will attract forex inflow into the country.
The VP also lamented the dwindling oil revenues, poor foreign investment inflows both Foreign Direct Investments and Foreign Portfolio Investment
He said the problems are largely due to exchange rate concerns and uncertainty around the repatriation of profit and security concerns.
Osinbajo said “As for the exchange rate, we have to move our rates to more reflective market as possible in my own respective view is the only way to improve supply.
“We can’t get new dollar in the system where the exchange rate is artificially low and everyone knows by how much our reserves can grow.
“So, I am convinced that the demand management strategy currently being adopted by the CBN needs [a] rethink and that’s just my view about that. But anyway, all those are issues am sure that when the CBN has time to address, it will be able to address in full.”
Nigeria is facing high foreign exchange liquidity problem which had led to the devaluation of the naira thrice since 2020.
In March 2021, the CBN devalued the official rate naira to trade at the NAFEX Investor & Exporter forex window rate of N410 per dollar.
The 2022 budget is predicated on an exchange rate of N410.15 to a dollar.
At the parallel market, the naira currently trades around N575 leading to investors preference of the market which gives them better quote.
But experts have argued that the rate differentials between the two rates are too unrealistic.
Speaking on the call for naira devaluation, the President of ACMAN called for caution given the fragilities, structural imbalances and vulnerabilities in the Nigerian economy which are yet to be addressed.
“Weakening the naira at this time will have grave consequences for the 2022 budget proposal and by extension the capital market,” he added.
Speaking on the interventions of the CBN, he said ACMAN commends the apex bank for its raft of interventions which facilitated the country’s early exit from economic recession in 2020 as well as the relatively strong real GDP growth of 5.01 per cent in Q2 of 2021.
“We urge the CBN to continue its accommodative monetary policy stance which has had a salutary effect on the stock market while at the same time tackling the supply-side induced inflation including through targeted interventions,” he added.
On the eNaira initiative, Uwaleke said that ACMAN welcomes the eNaira project of the CBN and on-going efforts by the apex bank to regulate the Fintech space.
However, he said given the scope of Fintech spanning credit, payments and investment/wealth management, there is need for strong collaboration between the CBN and the Securities and Exchange Commission for effective regulation.
The Association also advised the Federal Government to tie future loans to self-liquidating projects so as to reduce the huge amount spent on debt servicing.
But speaking on the development, Uwaleke who is also a former Finance Commissioner in Imo State, advised the government to take full advantage of opportunities in the Nigerian capital market to address the infrastructure deficit in the country.
These, he noted, include the resort to revenue bonds as well as leveraging the benefits of asset securitization.
He said, “We note that the 2022 budget proposal has a deficit of over N6trn and the government is largely borrowing to fill this huge financial hole. In view of the present unsustainable high debt service burden, the government is advised to tie future loans to self-liquidating projects.
“Infrastructure financing will continue to pose a major challenge to government except the private sector is put on the driving seat.
“We commend the innovative financing schemes proposed in the 2022 budget including Public Private Partnerships and Sovereign Green Bonds programme. Nevertheless, we advise the government to take full advantage of opportunities in the Nigerian capital market to address the infrastructure deficit in the country.
“These include the resort to revenue bonds as well as leveraging the benefits of asset securitization. We recognize that part of the 2022 fiscal deficit will be financed through privatization proceeds.
“However, the amount involved is not significant. The government is advised to identify more suitable assets for partial privatization and execute the process through the capital market. In this regard, we welcome the plan by the government to partially privatize the newly incorporated NNPC Limited through the Nigerian Exchange.”