“Nigeria’s Multiple Exchange Rate System Likely to Stay”

“Nigeria’s Multiple Exchange Rate System Likely to Stay”

Nigeria’s multiple exchange rate is more likely to stay in the short term, says Fitch in its report on Sub-Saharan Africa.

Analysts said to maintain the level of intervention seen prior to COVID-19 pandemic, the Central Bank of Nigeria (CBN) would need strong external reserves.

Meanwhile, the nation’s external reserves extended decline into the new month, weakening by US$30 million to US$38.17 billion on 01 July 2020.

According to the apex bank, there is an existing $2.5 billion foreign exchange demand backlogs.

Governor of the CBN, Godwin Emefiele had said the apex is seeking convergence between foreign exchange rates.

The CBN Boss made the statement feuding questions at a webinar organised by Citi on widened gap in foreign exchange rates.

In its outlook report, Fitch said the Nigerian government has maintained an interventionist approach to trade policy.

Trade via all land borders was banned in October 2019 in a bid to crack down on smuggling, and more recent government measures, including restrictions on inter-state movement to contain the local spread of Covid-19, have further disrupted supply chains.

Fitch stated that currency overvaluation and allocative inefficiencies also persist.

While the Central Bank devalued the naira by 15% in March, the gap between then official and ‘investor and export’ (NAFEX) rate remains significant, Fitch said.

“We see little sign that authorities are willing to move towards a more flexible exchange rate regime in the short term”, it added.

On Covid-19 and government reaction, Fitch said reform momentum in Sub-Saharan Africa (SSA) remains uneven.

Though the Covid-19 pandemic has slowed progress on fiscal reform across the board.

CBN Forecasts Negative Economic Growth for Q2

The ratings firm said South Africa and Nigeria remain laggards among the major economies in SSA.

In South Africa, plans to reform ailing state owned enterprises (SOEs) have continued to prove challenging, while Nigeria has maintained its interventionist approach to trade policy.

Also, the outlook for reform in Kenya is somewhat brighter, with the government having introduced new legislation to move the process of constitutional reform forward.

Fitch believes the bill will face challenges in passing through parliament.

Meanwhile, Fitch stated that Ethiopia remains a regional outperformer, with liberalisation efforts further boosted by government plans to privatise the sugar sector to boost export competitiveness.

That said, fiscal consolidation efforts have been temporarily suspended.