The need for effective synergy between the fiscal and monetary aspects of Nigeria’s economy and how to manage the foreign exchange rate better cannot be overstressed as Vice President Yemi Osinbajo has again spoken about it. Osinbajo spoke this morning at the Presidential Villa, during the ministerial retreat that was declared open by President Mohammed Buhari, on what the nation must do to better manage the Foreign Exchange. The immediate past President of Kenya, Uhuru Kenyatta, attended the two-day event and was a keynote speaker.
In his presentation, titled: ‘The Buhari Administration: Reflections on the Journey So far’, the Vice President, detailed some of the noteworthy achievements of the Federal Government, and said there are still 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.”
Continuing, Osinbajo 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 and 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); various iterations of the Dutch Auction System (DAS); Wholesale Dutch Auction System (W-DAS); and Retail Dutch Auction System (R-DAS). 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.”