The naira should not be devalued further, President Muhammadu Buhari said on Wednesday, despite the Central Bank of Nigeria’s growing struggles to keep the naira at current levels.
The nation’s revenue has been hit hard by the fall of global crude prices, and the CBN has imposed increasingly strict foreign exchange rules to save the external reserves and avoid what would be the third devaluation in one year.
The central bank had devalued the naira in November last year and February this year.
Despite the CBN’s uphill struggle to keep the naira from falling further, Buhari believes the naira must not be devalued.
“I don’t think it is healthy for us to have the naira devalued further,” Buhari said in an interview with France 24.
“That’s why we are getting the central bank to make modifications in terms of making foreign exchange available to essential services, industries, spare parts, essential raw materials and so on – but things like toothpicks and rice, Nigeria can produce enough of those,” he said.
The naira had fallen to as low as 242 per dollar on the parallel market in July, versus the official rate of 197. It has lost around 15 per cent against the dollar over the past year with the official devaluation in November and a de facto one in February.
In June, the CBN restricted access to foreign exchange for the import of 41 items ranging from rice and toothpicks to steel products and glass.
The stringent restrictions have not gone down well with investors, who have called for a relaxation.
Last week JP Morgan said it would remove Africa’s biggest economy from its influential emerging markets bond index by the end of October, citing a lack of liquidity and the central bank’s currency restrictions.
But Buhari’s position conflict with those of some local and foreign economists and analysts, who believe the naira must be devalued.
Economist and Chief Executive Officer, Financial Derivatives Limited, Mr. Bismarck Rewane, said the expulsion of Nigeria from the global bond index by JPMorgan might have reduced pressure on the CBN to devalue the naira but the ultimate issue might be for the CBN to devalue the naira.
He said, “With the battle to stay on the index having been lost it, there is less urgency to devalue the currency and remove forex restrictions. Further FX restrictions may even be imposed in the near term as the CBN tries to conserve foreign reserves. Nevertheless, we believe a devaluation has become even more imminent considering the need to boost investor confidence in an economy heavily reliant on dwindling oil revenues.”
The external reserves fell by three per cent to $30.69bn by September 14, from $31.63b a month earlier, central bank data showed on Wednesday.
The reserves were down 22 per cent from a year earlier.
The central bank ate up much of its reserves to support the local currency, selling dollars to bureau de change operators twice weekly in a bid to narrow the gap between the official and unofficial exchange rate. The bank cancelled the auctions in February.