The Central Bank of Nigeria (CBN) has said it lifted the ban on 43 products from accessing foreign exchange (forex) because the restriction pushed importers into the parallel market and increased the surplus demand for forex.
According to the apex bank, this weakened the parallel-market exchange rate and pushed up prices.
CBN had recently unbanned the restrictions placed on some items in 2015 from accessing forex. The restriction was placed to reduce foreign exchange demand for products that could be locally produced.
However, with the recent unbanning, the CBN says it wants to unify the market for forex with flexible and transparent pricing.
According to a circular released by its Corporate Communications Department, “The CBN wants to promote orderliness and professional conduct by all Nigerian foreign exchange market participants to ensure market forces determine exchange rates on a willing buyer – willing seller principle.
“The CBN wants to ensure price stability and is seeking to boost liquidity in the Nigerian foreign exchange market. As liquidity improves, we expect the distortions to moderate.”
The apex bank also said the implication of the removal would make monetary policies effective, reduce the inflation rate and eliminate the need for importers of these products to go to the parallel market.
Also, the bank said, “Local production will benefit from cheaper imported inputs, and consumers will benefit from cheaper retail products. It is expected that employment generation will be boosted as closed factories re-open. Price stability will benefit the economy and the standard of living in general.”
IMF, World Bank applaud CBN’s action
The International Monetary Fund (IMF) and the World Bank have commended the CBN’s decision to remove restrictions, saying Nigeria’s economy is sophisticated enough to restrict items from accessing FX.
The Director of the African Department, IMF, Abebe Aemro Selassie, during a media briefing on the Regional Economic Outlook for Sub-Saharan Africa, said, “The best way to manage a modern economy is to have fiscal policy lever and monetary policy lever to use to affect the kind of policy outcome you want, rather than saying I don’t like these goods and so I don’t want it to come in, etc, that tends to create an unhelpful distortion.
“Of course, there are tax policies you can also use if you really want to be against certain types of imports. In general, I think the direction the CBN has moved is a helpful one.”
Also, the World Bank President, Ajay Banga, noted that entrepreneurs in Nigeria are willing to contribute to the growth of the country’s economy, provided the market is favourable.