Sustaining FX Gain: Messages from IMF/World Bank Spring Meetings

The tasks of the Nigerian delegation to the just-concluded International Monetary Fund (IMF) and the World Bank Spring Meetings in Washington, United States, were well defined – sell Nigeria, seal economic pacts and market packages that will encourage the inflow of foreign capital into the Nigerian economy.

Of major concern was how to consolidate the recovery of naira, which slid below N1,200/$ in a fresh volatility concern, through policies that are aimed at boosting the value of the domestic currency.

As speculators stage a comeback, observers are querying why Nigerians do not have access to the Nigerian Autonomous Foreign Exchange Market (NAFEM) in real-time. They argued that easy access will help perpetuate a unified rate regime regardless of platform.

Relying on third-party foreign exchange (FX) quotes may have created disparities that enable speculation. To have a grip on the happenings in FX and rein in speculators, the Central Bank of Nigeria (CBN) said it has moved on from a firefighting approach to strategic planning in its efforts to achieve FX stability.

Speaking alongside the Minister of Finance, Wale Edun, the CBN Governor, Yemi Cardoso, explained that with the attainment of relative stability, particularly in FX, the focus of the CBN is now on enhancing the ease of doing business within Nigeria.

He added that this strategy’s objective is to consolidate the recent gains by fostering an efficient and transparent market system, which in turn is expected to boost financial and economic inclusion for small businesses and households.

His words: “In the six months since assuming the position of CBN, the challenges have been significant, from grappling with inflation to addressing volatility in the foreign exchange market. However, with relative stability now achieved, particularly in the FX, we have transitioned from firefighting to strategic planning across key areas.”

He mentioned that key initiatives of the new direction include leveraging technology and remote banking solutions to decrease transaction costs and widen access to financial services.

The CBN boss highlighted that the measures are part of a broader agenda to create a more resilient and inclusive economic framework, moving away from the emergency measures that previously dominated the central bank’s agenda.

He emphasized the need for a sequenced approach to address ongoing and future challenges, ensuring the CBN works closely with stakeholders such as investors, banks and businesses.

Cardoso stated that this collaborative effort underscores a renewed commitment to orthodox monetary policies, aiming to rebuild trust and confidence in Nigeria’s economic management and leadership.

He also spoke on the fresh depreciation of the naira, saying the weakness seems to be what Nigerians should expect. He went back to his well-known declaration: “We are doing everything possible to ensure that this is an exchange rate that finds an adequate price discovery level as policy reforms continue to take hold.”

The CBN governor described responses from the international community for increased investments in Nigeria as ‘positive’, expressing confidence that the positive sentiments will continue to improve in terms of continuous investor inflows into the country.

While he appreciated the need for foreign capital inflow, Cardoso also stressed the need for Nigeria to double its $20.5 billion estimated diaspora remittances saying it is a key policy focus in the short to medium term for the apex bank. To extract every opportunity remittance, hold for Nigeria, Cardoso has also raised a ‘remittances taskforce’ to ensure the remittance doubling is achievable.

The task force, which is a partnership between the apex bank and the international money transfer operators (IMTOs), will report directly to the office of the CBN governor.

The task force will be expected to drive progress and address any bottlenecks that hinder flows through formal channels.

His words: “We had very productive discussions leading IMTOs where we are collectively committed to doubling remittance flows through formal channels into Nigeria in the immediate short to medium term. This target is both ambitious and achievable and we are wasting no time in setting up a collaborative task force reporting to myself to drive progress to address any bottlenecks to hinder flows through formal channels.”

The Nigerian delegation met with the representatives of domestic and international stakeholders in the FX market such as Lemfi, Flutterwave, J.P. Morgan, Remitly, VertoFx, Interswitch, BudPay, Makeba, TapTap Send, Visa and Venture Garden Group.

The CBN is seeking to achieve a reduction in transaction costs, doubling remittance inflows through formal channels, establishing a stakeholders’ forum on IMTOs and compliance standardization.

An investment banker, Tolulope Alayande, insisted that CBN needs to establish clear guidelines on reporting FX transactions, the rate and other relevant data towards achieving a single official platform where Nigerians can access information on FX.

He added: “The problem with speculative manipulation is, even if CBN keeps bidding dollars to BDC at a low rate, the prevailing speculated rate will lord over the market and people will be forced to sell at that price to keep afloat. CBN must crack down on all speculative platforms.”

Edun said the federal government will continue to highlight the progress made so far in the Nigerian economy to attract more foreign investment into the country.

He maintained that the economy is moving in the right direction as the policies put in place by the present administration have started slowing down food inflation.

“We have all seen what has happened in terms of stabilising the exchange rate and inflation, which is now heading in the right direction. If you look closely at the numbers that came out, especially from Monday, you will see that there is a slowing of the rate of increase of food inflation, things are moving in the right direction, government revenues are up, and even oil revenues are up but not as much as we would like.”

The minister also disclosed that it is in urgent need of investment and increased trading relationships with member countries of the G-24.

He argued that a trading relationship with G-24 countries will play a critical role in the country’s quest for growth as well as ensure a stable and growing economy by bringing tranquillity to the tempestuous foreign exchange market.

Speaking through the Director General of the Budget Office of the Federation, Ben Akabueze, the minister informed the G-24, a group of countries working together to coordinate the positions of developing countries on international monetary and financial issues and indeed the global gathering, that Nigeria was well positioned to attract investments in various sectors such as manufacturing, agriculture, oil and gas, amongst others.

He informed that apart from Brazil, there is no country in the world with as much arable land as Nigeria as such the country should be a net exporter of food and not an importer.

Edun also justified the decision for the Dangote Refinery to work on meeting local demands for petroleum products before eyeing export markets.

“Does it mean that domestic demand is not yet met and a company refines products and exports, while Nigeria goes and imports the same products from Europe,” he said.

The minister added that local refining would be encouraged until indigenous demand has been fully met, and then the nation can export products as well as earn foreign exchange from such exports.

On how the government is deploying digitisation technology to enhance revenue management and collection, setting a goal for an over 60 per cent revenue increase this year, Edun projected that digitization will reduce the nation’s fiscal deficit from 6.1 per cent to 3.8 per cent of GDP and alleviate economic pressures on Africa’s largest economy.

“To get the economy going again, we do have to bring down inflation, we have to stabilise the exchange rate, and we eventually need to get interest rates down so investors can borrow in addition to their equity,” he said.

Edun further argued that delineating the key economic stabilisation measures is necessary to create a more attractive investment climate.

Though there have been effective collaborations between the Ministry of Finance and CBN, there has been little partnership between the CBN, which is a monetary institution and the Ministry of Trade and Investment which is responsible for trade policies.

Edun agreed that collaboration between government agencies is key to meeting set targets, saying: “Significant strides made in stabilising the naira and enhancing its performance through improved coordination between fiscal and monetary policy, increasing its appeal to both portfolio and direct foreign investors.”