Nigeria should seek help from interna tional organisations to get out of its current economic woes, Managing Director, International Monetary Fund (IMF), Christine Lagarde, has said. She gave the advice yesterday while fielding questions from journalists at the ongoing World Bank/IMF Spring Meetings in Washington.
According to her, Nigeria needs to seek help from international organisations that are willing to help. The IMF chief said: “With 60 per cent of Nigeria’s revenue coming from exporting crude oil, the recent slide in the price of oil has had a major impact on the Nigerian economy.”
Nigeria, Africa’s biggest economy, is fac-ing its worst crisis in decades, as the falling price of oil has slashed revenues, prompting the Central Bank of Nigeria (CBN) to peg the currency and introduce curbs to protect foreign exchange reserves, which have fallen to 11-year lows at $27.50 billion as at Tuesday, 12th April, 2016.
The IMF had earlier called on Nigeria to lift the curbs and let the naira reflect market forces more closely, as the restrictions have significantly affected the private sector. Speaking on how to reposition the Nigerian economy, Lagarde said: “Nigeria should seek help from international organisations that can best help.
“Nigeria should be open-minded about using flexibility of exchange rate in order to absorb some of the shock. We believe this is more efficient than having a list of products that are barred from being imported into the country.”
Besides, Lagarde said that speeding up the process of budget passage could energise the economy. “We believe that it is really important that budget should be signed and implemented,” she said. The IMF boss reiterated the preparedness of her organisation to come to the aid of Nigeria.
She said: “We are ready to help Nigeria if she seeks our help.” Lagarde also called on the Nigerian government to intensify the process of diversifying the economy. “After visiting Nigeria in January, I believe that it is really important that Nigeria should diversify its economy. It is not safe to solely depend on a commodity. Nigeria is full of energetic and smart people who can really transform the economy. The country should really look at the agriculture sector, where there is much of important. Nigeria needs to look into this and do something about it,” she stressed.
Meanwhile, financial experts have expressed mixed reactions over the currency swap deal reached between the Federal Government and the Peoples Republic of China. While some believe that Nigeria will benefit a lot from the transaction because it will reduce the current high demand for the dollar, thereby boosting the naira, others such as the Chief Executive Officer, Financial Derivatives Company, Mr. Bismarck Rewane, argue that it will not address the key issue of scarcity of dollars in the system. Nigeria and China had, on Tuesday, signed a currency swap deal to boost trade.
The Industrial and Commercial Bank of China Ltd (ICBC), the world’s biggest lender and the Central Bank of Nigeria (CBN) also signed a deal on Yuan transactions, which is expected to result in a free flow of Yuan (renminbi) among Nigerian lenders. In addition, China offered Nigeria a loan worth $6 billion to fund infrastructure projects. Commenting on the development, financial analyst and Managing Director/Chief Executive Officer at BIC Consultancy Services, Dr. Boniface Chizea, said it was a good development, as it would enable traders from both countries to settle transactions in their own currencies without using a third party currency.
He said: “Currency swap is more or less like trade by barter. Both countries buy goods and services from each other and pay in their currencies without having to go through a third party currency. It is a good move for Nigeria, as it will reduce the high demand for the dollar.
But Nigeria will have to get China to start buying a lot of its goods so that both of them can equally benefit from the arrangement.” He dismissed concerns that a likely weakness of the yuan in future could hurt Nigeria, saying that although details of the swap had not been disclosed, both countries would have considered adequate measures that would minimise the impact of a weakening of either of their currencies. Similarly, President, Association of Bureaux de Change Operators of Nigeria (ABCON), Alhaji Aminu Gwadabe, welcomed the deal, saying it will boost confidence in the foreign exchange market.
He said: “The currency swap will bring confidence to the forex market because as you know, the Chinese have also said that they are giving us a $6 billion loan for infrastructure development. Also, the deal will enable the CBN learn how the Chinese have been able to persevere in managing the yuan up to this level that it is now one of the world’s major currencies.
“I believe it will bring stability to the forex market because remember, the sovereignty of a country does not lie in its military might, but in the strength of its currency. The United States is respected as a global power today not because of its military might, but because the dollar is recognised as a means of exchange by over 150 countries.”
In the same vein, the Managing Director/Chief Executive Officer, Cowry Asset Management Limited, Mr. John Chukwu, said the deal was good for the country at this time. He said: “It is a positive development because, in the short term, it will reduce demand for dollars since a lot of our imports come from China and importers will be able to make payments in yuan instead of dollars. You should also realise that a currency swap means that you have deferred settlements to the future.
So, if we are lucky and the price of oil rises, we will be in a good position to meet our obligations when payments fall due. On the other hand, if oil price falls further, then we will have more debts on our hands.”
The Lagos Chamber of Commerce and Industry (LCCI) also supported the currency deal. In his reaction, the Director-General of LCCI, Mr. Muda Yusuf, said: “It is good for our economy as it will diversify our portfolio because the yuan is a strong and stable currency backed by a strong economy with which we do a lot of international transactions. “The Chinese economy is the second largest economy in the world; there is a relationship between the size of an economy and the strength or quality of its currency. “China is third major export destination in Africa, while China is Nigeria’s largest source of imports and third major trade partner.
“This move will greatly improve the fortunes of Nigeria’s economy in view of the rising profile of her trade relations with China.” He said that the diversification would maintain the value of the country’s external reserves while eliminating losses at a time of increased volatility in major world currencies.
However, in a telephone chat with New Telegraph, Rewane described the currency swap transaction as a “joke”. He argued that if the deal was going to have a positive impact on the forex market, the effect would have been felt on the parallel market a day after the pact was sealed. Rewane pointed out that the transaction had not addressed the key issue of scarcity of dollars in the system.
He said: “It is a joke. If this deal is going to work, we would have some appreciation of the naira on the parallel market today (on Tuesday). What the Chinese want is dollars while all Nigerians want is to be able to pay for their imports. “The pact won’t make Nigerians carry naira to China to purchase goods and the Chinese too would not bring yuan to Nigeria too to spend.” He said that the dollar remains the number one currency in international transactions and would continue to be the currency of choice for importers.
