President Muhammadu Buhari declared late Wednesday in Nairobi that he will not condone an official devaluation of the Naira, but according to Bloomberg, Nigeria’s economic crisis just got a whole lot worse.
Central bank Governor Godwin Emefiele on Tuesday resisted calls — again — to weaken the currency despite a plunge in oil prices that’s slashed revenue in Africa’s biggest crude producer. He stuck to his foreign-exchange restrictions that have led to capital flight, curbed output in the continent’s largest economy and led to the naira dropping to a record low on the black market.
Emefiele gave no indication in his Monetary Policy Committee statement that he is ready to ease controls even though they have been widely panned by investors, criticized by businesses and questioned by lawmakers. That’s set to deepen the crisis for an economy that probably grew at its slowest pace in 16 years in 2015, is facing inflation of 10 percent and a record budget deficit to pay government salaries and build roads and power plants.
“There is pressure but there is no way of exerting market discipline on the Nigerian central bank,” Ayodele Salami, who manages about $500 million of African equities as chief investment officer at Duet Asset Management in London, told Bloomberg magazine.
“We need to see a collapse in growth,” he said. “It’s not yet gone into territory where they have to panic. If growth was to be 1 percent or even go negative, I think that would definitely be the key thing that would persuade the central bank to move.”
The economy probably expanded 3 percent last year, the slowest pace since 1999, and is set to grow 4.1 percent in 2016, according to the International Monetary Fund.
The central bank has effectively pegged the naira at 197 to 199 per dollar since March by restricting imports of products from glass to wheelbarrows, halting supply of foreign currency to exchange bureaus and all but shutting down the interbank market with trading limits.
While Emefiele on Tuesday acknowledged the need for improving liquidity, he said policy makers were also committed to stability in the naira.
Nigeria has resisted devaluation while oil-producing nations from Angola to Russia and Mexico have let their currencies weaken.
The naira was trading at about 306 per dollar on the black market on Tuesday. Naira forwards soared after Emefiele’s speech, suggesting traders have lowered their expectations of a devaluation. Naira three-month non-deliverable forwards rose to 229.25 per dollar at 6 a.m. on Wednesday in Lagos, the commercial capital, from 250.5 on Tuesday.
“Oil has gone lower than anyone thought it was going to and that didn’t change their mind,” John Ashbourne, an economist at Capital Economics Ltd. in London, said in a phone interview with Bloomberg.
A weaker economy “didn’t change their mind, and now you have a huge gap between the parallel market and the official market and that hasn’t changed their mind either,” he said. “I’m not sure what would be the sort of straw that breaks the camel’s back.”
The currency controls have knocked investor confidence, with foreign inflows dropping by 32 percent last year, the Nigerian Stock Exchange said in a report on it’s website on Dec. 19. The benchmark equity index is down 17 percent this year, the worst performer globally after gauges in Shanghai, Saudi Arabia and Hong Kong.
The central bank has favored lowering interest rates to help support growth in the hope that banks will boost lending. The MPC reduced the benchmark rate by 200 basis points to 11 percent in November and kept it unchanged on Tuesday.
The bank “wants to encourage credit and stimulate the economy,” Lanre Buluro, an analyst at Primera Africa Securities Ltd., said by phone from Lagos. “However, I don’t see the banks lending in the near term because of low economic activity.”
Emefiele has the backing of President Muhammadu Buhari, who has said he doesn’t favor a currency devaluation. Buhari took office last year on a wave of optimism to fix the economy, fight corruption and combat attacks by Boko Haram militants.
“The president has indicated that he does not believe that a devaluation is the appropriate thing to do at this time,” Ike Chioke, chief executive of Afrinvest West Africa Ltd., which manages about 100 billion naira in investments, said by phone from Lagos. “It appears the decision on foreign exchange has been moved to a level above the central bank.”
In a state house press statement made available to elombah.com, President Muhammadu Buhari declared late Wednesday in Nairobi that he was yet to be convinced that Nigeria and its people will derive any tangible benefit from an official devaluation of the Naira.
Speaking at an interactive meeting with Nigerians living in Kenya, President Buhari maintained that while export-driven economies could benefit from devaluation of their currencies, devaluation will only result in further inflation and hardship for the poor and middle classes in Nigeria’s import-dependent economy.
The President added that he had no intention of bringing further hardship on the country’s poor who, he said, have suffered enough already.
Likening devaluing the Naira to having it “killed”, President Buhari said that proponents of devaluation will have to work much harder to convince him that ordinary Nigerians will gain anything from it.
CBN Governor, Emefiele
The President also rejected suggestions that the Central Bank of Nigeria should resume the sale of foreign exchange to Bureaux de Change (BDCs), saying that the Bureau de Change business had become a scam and a drain on the economy.
“We had just 74 of the bureaux in 2005, now they have grown to about 2,800,” President Buhari noted.
He alleged that some bank and government officials used surrogates to run the BDCs and prosper at public expense by obtaining foreign exchange from government at official rates and selling it at much higher rates.
“We will use our foreign exchange for industry, spare parts and the development of needed infrastructure.
“We don’t have the Dollars to give to the BDCs. Let them go and get it from wherever they can, other than the Central Bank,” President Buhari told the gathering.
The President reaffirmed his conviction that about a third of petroleum subsidy payments under the previous administration was bogus.
“They just stamped papers and collected our foreign exchange,” he said.
The President appealed to Nigerians studying abroad to bear with his administration as it strives to address the challenges they are facing as a result of new foreign exchange measures.
He said that he was optimistic that the Nigerian economy will stabilize soon with the efficient implementation of measures and policies that have been introduced by his administration.
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