THE Central Bank of Nigeria (CBN) has explained the reason for the constant depreciation of the value of the naira against the United States dollar.
The CBN Governor, Olayemi Cardoso, who is currently at the Senate – February 9 – with other members of the Nigerian economic team, earlier this week said that Nigeria had spent $40 billion on school and medical tourism in 10 years, putting pressure on the naira which keeps depreciating.
Speaking at a sectoral debate organised by the House of Representatives, Cardoso explained that foreign education expenses amounted to $28.65 billion while medical treatment abroad incurred about $11.01 billion.
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He said that given the substantial demand for education, healthcare, professional services, personal travel, and similar needs, the exchange rate was bound to face pressure.
“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 has 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 totalled 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.
According to Cardoso, personal travel allowances have accounted for 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,” Cardoso said.
He said while inflation pressures might persist, albeit temporarily, they would moderate significantly by quarter four of 2024. He also noted that exchange rate pressures were also expected to reduce with the smooth functioning of the foreign exchange market.
“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.”
Market-driven exchange rate
Cardoso explained that “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 remuneration standing deposit facility cap.”
The apex bank governor noted that while the CBN has the mandate of stabilising the exchange rate, achieving results would necessitate efforts beyond the bank itself and, indeed, an attitudinal change by all citizens.
He assured that the CBN was committed to implementing policies that would ensure a stable macroeconomic environment and guarantee improved livelihoods for all Nigerians.
Cardoso added that the relocation of some departments of CBN to Lagos was not political but only an implementation of what had been done before now, saying: “We did not change anything. We have always done this to get closer to the banks for best results.”
Finance Minister speaks
Also speaking, the Minister of Finance and Coordinating Minister of the Economy, Wale Edun, said inflation, exchange rate fluctuations, and other factors causing hardship in the country were also being addressed while agriculture was being strengthened for maximum production and non-oil sector economic diversification.
Edun said the country’s situation was due to a series of economic policies over the years, admitting that the cost of living had spiked due to inflation.
The Minister said things would improve, and many sectors would pick up and drive the economy. He called on Nigerians to be calm, confident, and have faith in the ability of the government to turn around the economy for the citizens to prosper.
Speaking on the benefits of fuel subsidy removal, he said: “If you look at the government’s finances today, there have been benefits to the federation accounts. There have been reductions in the consumption of petrol because of smuggling (in the past).
“There have been other benefits as a result of the changes. However, inflation has increased, the cost of living has hiked, and Mr President is committed to taking measures to address major stumbling blocks to the nation’s economic growth.”
In his remarks, the chairman of the Federal Inland Revenue Service (FIRS), Zacch Adedeji, said the federal government had no plans to increase taxes despite the target to collect N19.4 turns from taxes this year.
He said the target represented a significant increase of 56.9 per cent from the previous year’s actual revenue and 67.91 per cent from the previous year’s target.
Harrison Edeh is a journalist with the International Centre for Investigative Reporting, always determined to drive advocacy for good governance through holding public officials and businesses accountable.