Former Governor of Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, has identified introduction of politics into Nigeria’s foreign exchange policy as the main reason Nigerian recession lingered longer than necessary.
Soludo, who disclosed this on Wednesday, in his keynote address at the 8th annual Pan Africa Investor conference, organised by Renaissance Capital, in Lagos, said: “Stop playing politics with forex and monetary policy”.
He advised the CBN to reverse itself on most of its policy thrust by way of finding alternative ways to manage the foreign exchange and monetary policy for the economy to have a breathing space.
He added that Forex policy aggravated even the impact of crisis on the oil sector and its inability to drive the economy into avoidable recession.
On the 41 imports restricted items, Soludo said the policy had not added any value to the local currency in comparison with other major currencies.
According to him:”Sustained macro stability will be decisive for the success of the Economic Recovery and Growth Plan, ERPG. The first is that we must stop playing politics with Foreign Exchange, FX, management.
“The second thing is rebuilding CBN’s credibility for confidence to return to the system over the medium time. CBN must then transparently commit to clear objective and make clear its instruments”.
On the best way forward, the Professor of Economics suggested adopting a means by which the CBN can eliminate the multiple exchange rate regime, adding that, the alternative policy was very clear and simple.
Hear him further: “You cannot unify the forex market, once you begin to discriminate and do all those kind of things for eligible transaction.”
“There are two ways if you don’t want things to come in: you use the exchange rate and then you use the trade policy, raise the tariff.
“If it’s expensive for people to import, they will not import these items, but we have had this regime before, this whole concept of multiple rates is not advisable.
“But you can with just one policy tomorrow eliminate them, then have one single market for all of this and then you have the interbank market to work, period.”
“The point is that at the fiscal level, the major constraint is politics. Here you have aggregate government revenue of three to five percent of Gross Domestic Product, GDP, at the federal level, one of the lowest in the world.
“Now ERGP target to raise it to 15 percent, let’s see how that goes. How do we get there? Because if the fiscal revenue gets anywhere, even 10 percent of GDP, much of the fiscal crisis would go.
“Now you are adding debt service to current revenue in excess of 60 percent, about 66 per cent that’s clearly not heading anywhere.
“You have to do two things to put back and fix the broken public finance, the revenue thing has to go up and forex is part of that equation and then the task reforms that must follow but in terms of breath depth and collection efficiency and then the composition of government spending must alter fundamentally for us to get anywhere.”
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