Economy recorded $4.17bn forex deficit in one year

A total foreign exchange of $58.01bn came into the economy through the Central Bank of Nigeria within a 12-month period covering November 2018 and November this year.

The figure was arrived at based on an analysis of the foreign exchange inflow and outflow through the economy as contained in the economic report of the apex bank.

An analysis of the report showed that while the economy recorded foreign exchange inflow of $58.01bn, about $62.18bn went out during the one-year period.

Based on the rate at which outflows exceeded the inflows, the economy recorded a $4.17tn deficit in foreign exchange during the one-year period.

The main sources of Nigeria’s foreign exchange inflow are crude oil sales and receipts from non-oil sector.

The rate of foreign exchange inflows has significantly impacted on the country’s foreign exchange reserves, which are used to back liabilities and influence monetary policy.

In recent times, the nation’s external reserves have been on a decline owing to the drop in oil receipts and the intervention of the CBN in the foreign exchange market.

Data from the CBN showed that as of November last year, the country recorded forex inflow of $3.21bn while the outflow was put at $3.78bn. This resulted in a deficit net flow of $574.3m.

In December last year, the inflow was put at $5.04bn while outflow was estimated at $5.85bn, leaving a deficit net flow of $812.6m.

For January, February, March and April, the inflows were put at $5.39bn, $5.22bn, $7.75bn and $3.85bn while outflows were $5.69bn, $5.36bn, $5.25bn and $4.27bn, respectively.

This resulted in a deficit of $292.8m and $418.4m in January and April while February and March recorded positive net flow of $134m and $2.51bn respectively.

For May, the country recorded inflow of $4.01bn while outflow was $3.59bn, thus resulting in a positive net flow of $421.9m.

In June, July, August, September, October and November, the economy recorded inflows of $3.59bn, $3.6bn, $4.89bn, $4.15bn, $3.52bn and $3.72bn while outflows were $3.69bn, $3.84bn, $6.14bn, $5.42bn, $4.95bn and $4.31bn respectively.

This resulted in a deficit outflow of $98.8m in June, $228.5m in July, $1.25bn in August, $1.27bn in September, $1.43bn in October and $589m in November.

The report read in part, “Aggregate outflow of foreign exchange from the bank fell by 12.9 per cent and 17.3 per cent to $4.31bn, below the levels at the end of the preceding month and the corresponding period of 2018 respectively.

“The development, relative to the preceding month’s level, was attributed mainly to 10.4 per cent and 18.4 per cent decline in interbank utilisation and other official payments respectively.

 “Overall, foreign exchange flows, through the bank at end-November 2019, resulted in a net outflow of $0.59bn, compared with a net outflow of $1.43bn in the preceding month.

“It, however, recorded a net inflow of $2.71bn, when compared with the level in the corresponding period of 2018.”

Speaking on the development, experts said there was a need for an exchange rate regime that would guarantee investment inflows to various sectors of the economy while building the country’s external reserves.

Like every other country, they said Nigeria needed strong foreign reserves to meet international payment obligations, boost the country’s creditworthiness, provide a buffer against external shocks as well as maintain a stable exchange rate.

A developmental economist, Odilim Enwagbara, said the multiple exchange rates should be stopped to check the issue of round-tripping.

 He said, “The CBN should shut all multiple foreign exchange windows because if Nigeria wants to be a modern economy, then this thing must stop.

“What we need to do is to allow people to bring in forex and take them away unrestricted. If you allow that, more forex will enter the country than leaving the country.

“When you restrict access to forex for importation of certain products, they go to the black market to access forex and we know that these people from the black market get forex from the cheapest windows and this causes problems in the forex market.”

The Registrar, Institute of Finance and Control of Nigeria, Godwin Eohoi, said while a complete currency float was capable of unifying rates and reducing round tripping and speculative activities, toeing such a part would be suicidal for an import-dependent economy that relied on a single commodity for much of its forex inflows.

He said, “To improve the value of the naira, well-coordinated fiscal policies should be deployed to pursue import substitution and enhance the competitiveness of local production with a view to curtailing forex demand.

  “On the supply side, the government should fast-track efforts to improve the ease of doing business and the state of infrastructure in order to attract foreign investments as well as develop multiple streams of earning foreign exchange.

“In my view, it is only when the supply of forex is guaranteed from diversified sources that the issue of market-determined value of the naira can be tabled for consideration.”

The CBN Governor, Mr Godwin Emefiele, had said the apex bank would continue to operate a managed float exchange rate regime in order to reduce the impact continuous volatility in the exchange rate could have on the economy.

He said, “We will support measures that will increase and diversify Nigeria’s exports base and ultimately help in shoring up our reserves.

“While the dynamics of global trade continues to evolve in advanced economies, Nigeria remains committed to a free trade regime that is mutually beneficial; but particularly aimed at supporting our domestic industries and creating jobs on a mass scale for Nigerians.

“We intend to aggressively implement our N500bn facility aimed at supporting the growth of our non-oil exports, which will help to improve non-oil export earnings.”
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