NAIRA closed at N848.12 to the dollar on Tuesday, October 17, at the official window days after the Central Bank of Nigeria (CBN) reversed its policy on 43 items to save the country’s currency from further decline.

The CBN had, on Thursday, October 12, announced, among other policy issues, the lifting of foreign exchange (FX) restrictions hitherto placed on the importation of the 43 items by the former CBN governor, Godwin Emefiele, on June 23, 2015.

The new order allows importers of the items to purchase foreign cash through official channels in the Nigerian Foreign Exchange Market (NFEM). 

It will also help promote price discovery, transparency, and credibility in the FX rates, CBN said, directing all and sundry to reference the prevailing FX rates from platforms such as the CBN website, Financial Markets Dealers Quotations (FMDQ), and other recognised trading platforms.

A check by The ICIR on FX transactions at the FMDQ showed that the naira slid significantly against the dollar, depreciating by 11.71 per cent to N848.12/$1 from N759.20/$1 as of Thursday, October 12, when the CBN lifted the ban on the 43 items.

According to the apex bank, it initially placed the ban to reduce FX demand on products that could locally be produced and conserve foreign reserves, among other reasons.

However, the acute shortage of FX supply had remained amidst growing demand, causing the naira to fall to a record low against the dollar and widening the gap between the official rate and the parallel (black) market rate.

More worries are that the CBN’s periodic interventions in the exchange market have yet to yield the desired result to improve price stability in the FX market due to the weak size of the country’s external reserves.

The foreign exchange reserves had depleted significantly by $4.2 billion to $33.23 billion as of October 16, 2023, from $29.03 billion on June 23, 2015, when CBN placed the ban, a check by The ICIR on CBN’s website has shown.

Analysts had pointed out that the CBN’s recently released financial statements showed a significant percentage of foreign reserves were encumbered, even as J.P. Morgan Asset Management’s analysis of the accounts indicated that Nigeria’s net foreign reserves were significantly lower than previously estimated.

A leading global financial services firm, J.P. Morgan, had faulted the figures in the CBN’s financial statements and posited that the lousy aspect of the record lies in the decline in the country’s net FX reserves.

Although CBN had assured that removing these restrictions would eliminate the need for importers of the 43 items to go to the parallel market, reducing the pressure on the naira, experts are worried about the continuous weakening of the naira.

What should the authorities do to halt the naira crisis? 

Besides removing the distortions in the FX market, analysts believe the CBN needs to boost the market.

“While we appreciate the need to eliminate the distortions in the market, we reiterate our view that the only viable solution to the current FX crisis is to boost the country’s foreign exchange revenues,” analysts at CSL Stockbrokers Limited said.

According to the CSL analysts, the first step is for the government to reduce crude oil theft and enhance oil production.

“The swift start-up of the Dangote refinery, especially the export side of the business, remains a game changer in our view as it will be a major source of foreign exchange into the country.

“We believe that more has to be done to promote the country’s exports, with the agriculture sector receiving priority in order to increase the production of many cash crops for exports,” they said.

They urged the government to have a blueprint to explore the country’s enormous untapped natural resources to increase foreign exchange earnings.

“We believe steps like these will attract foreign portfolio investments, which could help stabilise the market in the interim,” the CSL analysts added.

Meanwhile, a development economist, Kazeem Bello, had told The ICIR that except the government assists in bailing out the CBN by finding foreign exchange inflows into the market, the naira would inevitably continue to take a plunge.