•Says speculative demand, inadequate forex supply due to non-remittance of oil earnings
•Exchange rate increased, depreciated due to decline in supply of dollars
By Christiana Ekpa
Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, said between 2010 and 2020, Nigerians spent about $40 billion on foreign education expenses and medical treatment abroad, even as he explained that the exchange rate in Nigeria has increased and depreciated due a decline in the supply of US Dollars coinciding with a surge in the demand for US Dollars.
While foreign education expenses amounted to $28.65 billion, the CBN governor said medical treatment abroad incurred around $11.01 billion.
Cardoso who disclosed this at the sectorial debate organised by the House of Representatives, Tuesday, said the amount surpasses the total current foreign exchange reserves of the apex bank.
The sectorial debate/dialogue is an initiative of the 10th House of Representatives as part of its periodic Policy Brief Series. In attendance also were Minister of Finance, Wale Edun, Minister of Budget and Planning, Atiku Bagudu and the Chairman of the Federal Inland Revenue (FIRS), Zacch Adedeji.
Cardoso while providing reason for the nation’s volatile exchange rate, explained that the exchange rate in Nigeria has increased and depreciated due a decline in the supply of US Dollars coinciding with a surge in the demand for US Dollars.
Quoting recent data from UNESCO’s Institute of Statistics, Cardoso said number of Nigerian students abroad increased from less than 15,000 in 1998 to over 71,000 in 2015. According to him, by 2018, the figure had reached 96,702 students.
“Given this data, it’s crucial to highlight that between 2010 and 2020, foreign education expenses amounted to a substantial US$28.65 billion, as per the CBN’s publicly available Balance of Payments Statistics”, he stated.
Cardoso added: “Similarly, medical treatment abroad has incurred around US$11.01 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totaled nearly US$40 billion. Notably, this amount surpasses the total current foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger Naira today.
“Personal Travel Allowances have accounted for a total of US$58.7 billion during the same period. Notably, between January and September 2019, the CBN disbursed US$9.01 billion to Nigerians for personal foreign travel.
“Continuing on the topic of the demand for US Dollars, Nigeria’s annual imports, which require dollars for payment, amounted to US$16.65 billion in 1980. By 2014, the annual import expenditure had significantly surged to US$67.05 billion, although it gradually decreased to US$54.71 billion as of last year. Similarly, food imports escalated from US$2.63 billion in 1980 to US$14.84 billion in 2019.
According to Cardoso, given the substantial demand for education, healthcare, professional services, personal travel, and similar needs, the exchange rate is bound to face ongoing pressure.
The CBN governor who said the country is at a turning point, observed that the bold reforms underway across different segments of the economy, though initially challenging, are aimed at addressing these challenges sustainably.
He expressed confidence that positive outcomes are already emerging and will become more apparent in the near future.
He added while inflation pressures may persist, albeit temporarily, they are expected to moderate significantly by Q4 2024, noting that exchange rate pressures are also expected to reduce with the smooth functioning of the foreign exchange market.
He said to bolster the inflow of US Dollars into the country, the economy must earn these dollars through exports, whether oil or non-oil, or by attracting foreign investments.
Cardoso said: “The Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira. Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
“The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
“To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remuneration Standing Deposit Facility cap.
He noted that a robust economic foundation was essential to produce goods and services that the global market is willing to pay for in US Dollar, adding that when such supply surpasses demand, the exchange rate appreciates, causing the price of the dollar to fall.
He regretted that in Nigeria, the contrary has taken place.
Cardoso noted that while the CBN has the mandate of stabilizing the exchange rate, achieving results would necessitate efforts beyond the Bank itself and indeed to an attitudinal change of all citizens.
“Monetary policy actions are sometimes inhibited by transmission lags, nonetheless, it is expected that the policy measures implemented by the Bank will permeate the economy in the short to medium term”, he stated.
The Executive Chairman Federal Inland Revenue Service (FIRS), Zacch Adedeji while also speaking at the sectorial debate, said that the federal government have no plans to increase tax but to re strategize in ways that will yield positive and more results.
“We plan to collect 19.2 trillion.
We are not going to increase any tax but to re strategize to bring more people into the tax net and that has led to restructuring. The focus of Mr. President is not to tax but tax return on investment.
The Minister of Budget and National Planning, Atiku Bagudu also speaking on the state of the economy said that the current economic challenges been faced is been looked into with strategic plan to resolve the challenge.
“We will overcome the challenges of the moment. People will be inconvenienced, but things will get better as government implements the reforms.
Minister of Finance, Wale Edun while speaking said that the country is where it is at the moment due to series of economic policies over the years, adding that cost of living has spiked as a result of inflation.
“We are where we are today as a result of series of economic policies over the years.
He however said, the president has promised to take measures that will address major stumbling blocks to the nation’s economic growth.
He further stated that oil production has steadily increased as a result of improved security in oil producing areas and fight against oil bunkering and other criminalities in the area.
According to him, the measures have increased investor confidence in the sector while the nation improves it’s crude oil output.
He said, inflation, exchange rates fluctuations and other factors are also being addressed while agriculture is being strengthen for maximum production and non-oil sector economic diversification.
He added that, as things improve, many sectors will pick up and drive the economy.
He therefore called on Nigerians to be calm, confident and have faith on the ability of the government to turnaround the economy for the citizens to prosper.
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