The Chief Executive Officer, Centre for the Promotion of Private Enterprises (CPPE), Dr Muda Yusuf has called for an urgent review of Nigeria’s foreign exchange policy to stem its slide and volatility.
Yusuf gave the advice at the maiden edition of the CPPE quarterly press conference on Monday in Lagos.
The conference covers major macroeconomic variables such as the Gross Domestic Product, Naira exchange rate, inflation rate, debt sustainability and fiscal viability of government, among others.
Yusuf said that the increasing currency depreciation in the parallel market remained a cause for concern and should not be allowed to continue.
He stressed that the current rigid stance of the Central Bank of Nigeria (CBN) on the foreign exchange policy was hurting investors.
The CPPE chief said it was also creating distortions and retarding the recovery prospects of the Nigerian economy.
He highlighted that the benefits of a flexible exchange rate model enhance liquidity in the foreign exchange market, eliminate discretion in the allocation of forex and reduce uncertainties.
Yusuf reiterated the CPPE proposition that the country should adopt a flexible exchange rate policy.
“Let me clarify that this is not a call for currency devaluation, rather, it is a pricing framework that reflects the demand and supply fundamentals.
“It is a model that is sustainable, predictable and transparent and would reduce uncertainty and inspire the confidence of investors.
“It would minimise discretion and arbitrage in the foreign exchange allocation mechanism,” he said.
He also called for deepening of the autonomous foreign exchange market through the liberalisation of inflows.
“The sector also needs acceleration of reforms to boost private investment in domestic petroleum refineries to stop the current massive forex outflows and incentivise the gas sector,” he said.
Yusuf identified major headwinds to investment performance and economic growth in the last couple of months.
These, he said, include insecurity and the worsening foreign exchange crisis reflecting in the sharp and continuous depreciation of the naira.
According to him, the parallel market rate depreciated by over 15 per cent in the past three months, reaching a low of N590/dollar, meanwhile, the official exchange rate remained fixed at N416/dollar.
This, the CPPE boss said, signposted the widening gap between the parallel and the official market rate with its attendant distortions in the economy.
“Major macroeconomic indicators suggest that the Nigerian economy is floundering and is being further weakened by these headwinds.
“A stumbling economy cannot afford these multiple shocks.
“The government therefore needs to take urgent steps to pull the economy from the brink,” he said.
Reviewing the country’s Gross Domestic Product (GDP) growth rate, Yusuf noted that it grew by 3.40 per cent in 2021, year on year marking the highest growth rate since 2015.
He, however, noted that laudable growth performance was one thing, while translating the growth to improved welfare, job creation, poverty reduction and economic inclusion was a completely different matter.
“The last few years were characterised by worsening poverty situation, high inflationary pressures, massive erosion of purchasing power, high energy prices, escalating production cost, sharp currency depreciation and many more.
“These are critical developmental metrics on the basis of which the performance of the economy should also be measured.
“Therefore, going forward, policy makers should prioritise these key development indicators.
“Citizens welfare and investment productivity in the economy matter even more than the GDP numbers,” he said.
Addressing inflation, Yusuf said that the technical computation of the inflation figures by the National Bureau of Statistics was not in dispute.
He, however, said that the reality of inflation impact over the past one year was at variance with the official inflation data.
Yusuf noted that for the basket of goods consumed by most households, prices had jumped by between 30-100 per cent over the past one year.
“Businesses have been similarly impacted as they have been experiencing a slump in sales, turnover and profits margins.
“The impact on small businesses is even more severe because of their limited capacity to absorb economic shocks.
“The spiraling inflation dynamics deserves an urgent policy response at the highest level of government as the impact on citizens’ welfare is severe,” he said.