The Naira-Dollar Azonto Dance and Osinbajo’s Common Sense jab, by Abdullahi O. Haruna Haruspice
Nigeria’s Vice President, Professor Yemi Osinbajo is not an economist but whenever he speaks on economic issues, he sounds more convincing and usually filled with practical panacea. Like before, he didn’t disappoint when joined the furore on the declining fortune of the naira. While those with the titles of economists inundate us with the usual cliches of the burden on the naira, the fiery lawyer-turned administrative economist opined that the Central Bank of Nigeria (CBN) review its strategy on foreign exchange and ensure that the Naira’s value reflects the market reality, rather than what he described as “artificially low”, deterring investors from bringing foreign new dollars into the system where the exchange rate is artificially low. He argued that the demand management strategy currently being adopted by the CBN needs a rethink. Currently, the naira is changing at N411 to $1 at the official site of the market, while the same goes for about N565 at the parallel market.
The above is the conundrum that grips the Nigerian economy, but is Professor Yemi Osinbajo wrong?
We were taught that the exchange rate is the value of one currency for the purpose of conversion to another, e.g, the exchange rate of the Dollar against the Naira. The effectiveness of the exchange rate is largely affected by the level of coordination between monetary and fiscal policies of a nation.
Monetary policy is the set of tools that the nation’s Central Bank has in its kitty to promote sustainable economic growth by controlling the overall supply of money. Fiscal policy is using government spending and tax policies to influence economic conditions, especially macroeconomics. If this is so, then the Professor hasn’t committed any economic offence – because if the CBN is pursuing a contractionary monetary policy, the tax organization (FIRS) and government spending must also be contractionary. Same way, if the apex bank is adopting an expansionary monetary policy, government spending and the tax organization must also do same.
The synergy between these two organs (CBN and FIRS) is what is needed to influence the desired outcome in the economy, all things being equal. The CBN cannot be going right while the fiscal policy authorities are going left, it won’t achieve the desired state of the economy. It will only lead to inflation and hence the depreciated naira as we are seeing now. A good example of this “Policy Divorce” between these policymakers was when the CBN printed billions of naira by “Ways and Means” in June 2021, and shared with the federating state governments through the FAAC. These billions of naira were not backed up by any form of production and it is even worse when the governors use over 60% of these funds for only payments of salaries with other recurrent expenditure. It will only transmit to assured and steady inflation!
Again, as the Vice President said, we must allow the market forces to determine exchange rate. How long shall we continue to suppress the dollar against the naira? In the first place, we don’t even have the dollar. Why suppress the naira with the dollar we don’t have?
Recently, the monetary policy authorities have increasingly focused on implementing policy to ensure price stability and strengthen CBN independence, while the fiscal authorities have allowed debt managers to focus more on cost minimization. This DIVORCE, in monetary and fiscal functions in no way lessens the need for effective coordination of monetary and fiscal policy if the overall economic performance is to be optimized and maintained in the long run.
The foundation for the free fall of the naira against the dollar and other foreign currencies was actually laid by our actions and inactions. We are so profligate, aesthetic, and utterly consuming without recourse to ingenious thinking. We look outside for our needs and in the corresponding effect; we are greeted with the reality of forced dependence on the dollar. The time to limit the over-dependence on the dollar as a legal tender is now, reliance on foreign goods and services should be halted as we prepare in grim reality to begin to think inward by going indigenous in our thought processes.
It is time our health institutions are improved with requisite facilities and the needed infrastructural architecture to reduce the incidences of medical tourism. The tripartite collaboration between Nigeria and Indian and China where the two foreign interests are opening their branches in Nigeria is a perfect way of reducing the burden on the naira.
Educational voyages into foreign lands which exacerbates pressure in the interaction between the naira and the dollar should be looked into. When standards are improved in our educational system, the propensity to have people rush over themselves in search of foreign degrees will be reduced and internal naira values will become a reference.
The monstrous menace of round-tripping among the operators of our banking system must be checked with punitive sanctions. Forex should be in the hands of those with a sincere need for it, especially those whose foreign deals are intended to add value to our naira. It is shameful how in Nigeria currencies are paraded and sold in the open market with many Nigerians buying merely for speculative reasons, and betting on the fall of the Naira. It is even more disgusting when these sharp practices are coloured with the appellation of ‘parallel market’! Manufacturers should in the real sense be the pampered bride of forex business and not some idle speculators under trees.
So to return to Osinbajo’s masterclass, the fate of the Naira will not improve until our monetary policy shifts from forcing the naira to remain artificially low to a more holistic process of adding value, looking inward and tightening our belts as a nation until once more the Naira is at par with the Dollar as it once was.
We know where the rains drench us but for our sustained political correctness, we strive to be academic, passive, and distant from the realities. Until we look inward and visit the tailor shop to make us the clothes of indigenous thinking, we shall continue to wail perennially on the sliding fortune of the Naira against the dollar.
Haruna Abdullahi Haruspice writes from Abuja