The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso has assured Nigerians that the economy of the country will turn for the better with the bold sectoral reforms underway.
Cardoso at the House of Representatives on Tuesday, said “I am confident that positive outcomes are already emerging and will become more apparent shortly. The dedicated and relentless efforts being made are certain to bring about significant and positive changes for our economy.”
He cited the upgrades to Nigeria’s ratings from stable to positive from international rating agencies such as Fitch, Moody’s, and S&P and commendations from multilateral banks like the World Bank as a reflection of the positive trajectory.
“These reports acknowledge the potential reversal of the deterioration in the country’s fiscal and external position due to the authorities’ reform efforts. While recognizing the painful adjustments, they all point to a direction that will unlock much-needed growth and development for our economy in the medium to long term,”
He acknowledged that despite these commendations, concerns regarding the cost of living and currency exchange rates remained, saying, “Indeed, this is a major topic of concern in our villages, our towns, and our cities. The urgency of the matter is not lost on us at the Central Bank and I assure you we are working tirelessly with colleagues from across government, including with the leadership of this House, to bring lasting solutions.”
On the economic outlook domestically, the Federal Government of Nigeria anticipated a 3.76 percent real GDP growth in 2024, slightly surpassing the estimated 3.75 percent for 2023.
“This optimism is backed by key government reforms and the expectation of improved crude oil prices and production, which are set to drive economic growth,” he said.
“Each sector may face unique challenges and opportunities in 2024. The services sector is expected to thrive due to increased digital lending offerings, while the agriculture sector is projected to grow faster with improved productivity. Anticipated growth in the industry sector is linked to increased crude oil production.
“Inflationary pressures are expected to decline in 2024 due to the CBN’s inflation-targeting policy, aiming to rein in inflation to 21.4 percent, aided by improved agricultural productivity and easing global supply chain pressures.
“The CBN’s inflation-targeting framework involves clear communication and collaboration with fiscal authorities to achieve price stability, potentially leading to lowered policy rates, stimulating investment, and creating job opportunities.
“The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
“The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remunerable Standing Deposit Facility cap.”
On exchange rates, he said the rapid rise in demand for forex to pay school fees abroad, foreign medical treatments, and growing consumption of foreign products among others had made the demand for forex higher than what the country is earning.
“Looking at the demand side of the exchange rate, it’s important to note the growing number of Nigerian students studying abroad. In the 1980s and 1990s, the need for US Dollars for their living expenses was minimal. However, recent data shows a significant change. According to UNESCO’s Institute of Statistics, the number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. By 2018, this figure had reached 96,702 students, as per the World Bank. Another report projects the number of Nigerian students studying abroad to exceed 100,000 by 2022. Additionally, the UK’s Higher Education Statistics Agency noted a 64% increase in Nigerian students studying in the country, rising from 13,020 in the 2019/2020 academic session to 21,305 by the 2020/2021 session,” he said.
“Given this data, it’s crucial to highlight that between 2010 and 2020, foreign education expenses amounted to a substantial US$28.65 billion, as per the CBN’s publicly available Balance of Payments Statistics. Similarly, medical treatment abroad incurred around US$11.01 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totaled nearly US$40 billion. Notably, this amount surpasses the total current foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger Naira today.
“Personal Travel Allowances accounted for a total of US$58.7 billion during the same period. Notably, between January and September 2019, the CBN disbursed US$9.01 billion to Nigerians for personal foreign travel.
“Continuing on the topic of the demand for US Dollars, Nigeria’s annual imports, which require dollars for payment, amounted to US$16.65 billion in 1980. By 2014, the annual import expenditure had significantly surged to US$67.05 billion, although it gradually decreased to US$54.71 billion as of last year. Similarly, food imports escalated from US$2.63 billion in 1980 to US$14.84 billion in 2019.
“In 1980, more than 75 percent of the vehicles used in Nigeria were domestically produced by companies like Volkswagen in Lagos, Peugeot in Kaduna, and others. Presently, over 99 percent of the cars driven are imported, necessitating dollar payments. Similarly, in 1980, the majority of the clothing worn was sourced from Nigerian textile mills in Funtua, Asaba, Kano, Lagos, and various other towns and cities. Today, nearly all the clothing worn is made from imported fabrics.
“Given the substantial demand for education, healthcare, professional services, personal travel, and similar needs, the exchange rate is bound to face ongoing pressure.
“On the supply side of the exchange rate, to bolster the inflow of US Dollars into a country, the economy must “earn” these dollars through exports, whether oil or non-oil or by attracting foreign investments. A robust economic foundation is essential to produce goods and services that the global market is willing to pay for in US Dollars. When such supply surpasses demand, the exchange rate appreciates, causing the price of the dollar to fall. Unfortunately, in Nigeria, the contrary has taken place.
“In 1980, our import expenditure stood at US$16.65 billion, while our exports amounted to US$25.97 billion, resulting in a surplus of US$9.32 billion. Thus, during that year, we managed to fulfill the demand for US Dollars from our existing supply and still had over US$9 billion in surplus. In such a situation, the exchange rate (the value of the US Dollar) would not increase because, similar to any commodity, its supply surpassed the demand. Moreover, from 2003 to 2013, we experienced a surplus of US$331.73 billion in the economy, with oil exports alone contributing over US$798 billion. This surplus of dollars would typically stabilize the exchange rate, leading to a “strong” Naira.
“Regrettably, over the past 12 years, oil exports, constituting over 90 percent of our foreign exchange earnings, have declined from US$93.89 billion in 2011 to US$31.4 billion in 2020.
“From the aforementioned points, we can infer that the genuine issue impacting the exchange rate is the simultaneous decrease in the supply of, and increase in the demand for, US Dollars. It also seems that the task of stabilizing the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the Bank itself and indeed to an attitudinal change of all our citizens.”
However, he assured that his team had dedicated to refocusing the CBN by giving primacy to price stability.
“We also aim to build confidence in the Nigerian economy through the maintenance of stability in consumer prices and the foreign exchange market,” he said.
“We are aware that the twin challenges of inflation and exchange rate depreciation on our economy are daunting, however, they are not insurmountable.
“Monetary policy actions are sometimes inhibited by transmission lags, nonetheless, it is expected that the policy measures implemented by the Bank will permeate the economy in the short- to medium-term.
“Inflation pressures may persist, albeit temporarily, but are expected to moderate significantly by Q4 2024. Exchange rate pressures are also expected to reduce with the smooth functioning of the foreign exchange market.
“We are committed to implementing policies that will ensure a stable macroeconomic environment and guarantee improved livelihoods for all Nigerians.”
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