By BABAJIDE KOMOLAFE
The exchange rate policy of using the foreign reserves to defend the naira being pursued by the Central Bank of Nigeria (CBN) portends more risk to the economy.
Chief Executive Officer, RTC Advisory Services Limited, Mr. Opeyemi Agbaje made this assertion at the Bi-monthly Discourse of the Finance Correspondents Association of Nigeria (FICAN) held last week in Lagos.
“The risk of the policy we have followed is that it makes it mandatory that one day we would do a massive devaluation that then distorts the economy and cause structural problems”, he said.
He advised the incoming Governor of the Central Bank of Nigeria (CBN), Mr. Godwin Emefiele to change course and pursue a flexible exchange rate policy
“It does not make sensible policy to use the reserve to defend the naira. We are using foreign reserves to create billionaires or millionaires illegally at our own expense.
Anytime you do a rate that is different from the market, you are subsidising those who buy dollar because anybody who buys dollars from RDAS is receiving a subsidy of N10 to N15 from the Nigerian government.
“Anybody that issues a subsidy should have strategic reasons for doing so, but who are we subsidising? We are subsidising the school fees of all the people in schools abroad.
We are subsidising the holiday of everybody who chooses to go on holiday, we are subsidising the corruption of anybody who steals money and transfers it abroad. We are subsidising wine and Champaigne, all the consumption we do.
Now there is some good element of the subsidy, industries that import raw materials and create jobs or anybody that is importing for otherwise productive purpose. But what is the proportion of the productive purpose to the total consumption of dollars.
So I don’t support the CBN’s determination, as espoused under Sanusi and supported by most Nigerians to protect the naira at the expense of our reserves and at the expense of our common patrimony, because it is collective subsidy to capital flight. It does not make economic sense.
“Yes we have achieved inflation at 7 percent, but there is a debate about the cost. And exchange rate is one of the costs, and the subsidy we provide is one of the costs.
“My advice to the incoming central bank governor is to take a little bit of flexibility in relation to the exchange rate even at a cost of a one off inflation pressure. I think we can still keep inflation below 10 percent. I will rather some flexibility in exchange rate and 9.0 percent inflation for instance than depleting reserves perpetually and sending the wrong signal to currency speculators and encouraging moral hazard”.