tmp_13261-201612_Nigeria-in-2017941746745
Nigeria in 2017 by SB Morgen
Nigeria in 2017 by SB Morgen
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2016 REVIEW – THE ECONOMY<br />
The year was filled with a variety of economic<br />
shocks, largely precipitated by dw<strong>in</strong>dl<strong>in</strong>g<br />
revenues from oil.<br />
Firstly, from the day the Buhari government<br />
took office, it could not show that it had a<br />
coherent economic strategy/plan to steer<br />
the country through the tough times. A<br />
key highlight of the paralysis was the delay<br />
<strong>in</strong> pass<strong>in</strong>g the medium-term expenditure<br />
framework (MTEF) and the 2016 federal<br />
budget. The MTEF which the Buhari<br />
adm<strong>in</strong>istration has touted as its silver bullet<br />
for the <strong>Nigeria</strong>n economy was not passed<br />
until May 2016.<br />
Secondly, there was a clear divergence of<br />
purpose between the CBN’s monetary policy<br />
and the government’s fiscal policy. There was<br />
no better expression of this than the crash of<br />
the exchange rate of the Naira aga<strong>in</strong>st other<br />
currencies. Prior to oil price crash, the CBN<br />
had ma<strong>in</strong>ta<strong>in</strong>ed +/- 3 $ band around the<br />
exchange rate of ₦199/$.<br />
would <strong>in</strong>tervene where necessary to ensure<br />
a “managed float” of the Naira. Despite<br />
some early success, this has failed to solve<br />
the underly<strong>in</strong>g issues and users still have to<br />
source FX from the parallel market which<br />
presently quotes rates at over 20% of the<br />
<strong>in</strong>terbank market to the frustration of FMDQ<br />
OTC and other market participants.<br />
As at 1st December, 2016 <strong>in</strong>terbank market<br />
clos<strong>in</strong>g spot rate was ₦305.0/$ whereas<br />
the parallel market rate stood at ₦475.0/$.<br />
Attempts such as the use of security<br />
agencies to force FX prices down have<br />
backfired, caus<strong>in</strong>g further supply issues and<br />
a commensurate <strong>in</strong>crease <strong>in</strong> exchange rates<br />
at the parallel market and provid<strong>in</strong>g key<br />
<strong>in</strong>centives for hoard<strong>in</strong>g and mak<strong>in</strong>g huge<br />
profits from round-tripp<strong>in</strong>g currency.<br />
Once foreign currency receipts fell follow<strong>in</strong>g<br />
the oil price crash, it became impossible for<br />
the CBN to meet majority of FX demand and<br />
this drove users to the black market, push<strong>in</strong>g<br />
up the price <strong>in</strong> the process. Eventually the<br />
CBN jettisoned its fixed exchange rate and<br />
<strong>in</strong> collaboration with FMDQ OTC developed a<br />
new FX regime <strong>in</strong> which the <strong>in</strong>terbank market<br />
was to become the official market and CBN<br />
10
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