Nigeria’s Vice President, Prof Yemi Osinbajo, SAN, has again spoken on the need for an effective synergy between the Fiscal and Monetary aspects of Nigeria’s economy and how to better manage the country’s foreign exchange rate.
He spoke this morning at the Buhari Administration’s Ministerial Retreat declared open by President Muhammadu Buhari at the Statehouse Conference Center at the Presidential Villa. The annual retreat is being attended by all Federal Ministers and heads of agencies and parastatals.
In his presentation titled The Buhari Administration: Reflections on the Journey So far, the VP who detailed some of the game-changing achievements of the Federal Government said there are some areas of concern in the economy.
According to him, “the first is the synergy between fiscal and monetary policy. The failure of that synergy has led to unnecessary drawbacks in our economic performance and planning. What imports are eligible for foreign exchange must agree with the fiscal ambitions for manufacturing and industry.”
Currently, such decisions on import eligibility for foreign exchange for instance are being taken solely by the monetary arm, although the fiscal arm would normally be expected to lead in such matters.
Continuing, the VP also said “our exchange rate management continues to be an issue. The exchange rate of the naira to convertible currencies continues to face significant downward pressure because demand substantially outstrips supply.
“That is just the reality. On one hand, we have tried demand management and rationing, which has not really worked because fixing the price while the parallel market reveals a massive arbitrage merely creates the opportunity for massive rents.
“It will also compound the backlog of remittances for foreign businesses who want to repatriate their earnings. The discussion that we must now have going forward is how best to manage the situation by finding a mechanism for increasing supply and moderating demand which will be transparent and will boost confidence.
“I think that a more market-driven approach will be best, some price discovery within the context of a managed float is certainly required. Some efforts at controlled price discovery that had been made in the past include the Foreign Exchange Market (FEM), interbank Foreign Exchange Market (IFEM), and various iterations of the Dutch Auction System. (DAS), Wholesale Dutch Auction System (W-DAS), Retail Dutch Auction System (R-DAS).
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“While they may not have been perfect it would appear as if the rules were clear and there was relative stability. When people know how they can access foreign exchange competitively, this will boost confidence and inward flows will increase.”
Among the game-changing achievements of the Buhari administration that the VP listed include the development of infrastructure “with the creativity we have introduced to infrastructure financing.”
He also spoke about the success of the Socially Investment Programmes and the improvements in generating capacity in the power sector and the Solar Power Naija which is in the process of providing off-grid power to about 20 million Nigerians. He also spoke about the progress in the Digital Economy with the sector contributing over 18% to GDP in the second quarter of 2020, almost three times the oil and gas contribution.