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Expert Warns Against The Dangers Of CBN’s Policies


The Chief Economist, Standard Chartered Bank, Africa, Razia Khan, has cautioned that the recent foreign exchange policies introduced by the Central Bank of Nigeria (CBN) – the imposition of forex restrictions on imports and the requirement that clients’ demand for forex be pre-funded 48 hours ahead – were already fueling inflation, thereby making it difficult for the Federal Government to implement key reforms such as the removal of the subsidy on petroleum products and increasing the Value Added Tax (VAT).

In a statement made available, she said: “The authorities’ policy options are likely to be constrained unless there is a change in Nigeria’s FX regime, which would likely relieve pressure on the FX reserves and attract new inflows, while reducing – over time – the need for very tight monetary conditions. To date, FX reserves and the real economy, rather than the currency, have borne much of the adjustment to lower oil prices. This has been costly.

“In the absence of policy change, little can be done to boost banking- system liquidity. Fiscal policy has little scope to boost growth amid reports of substantial government arrears. Monetary policy cannot do much either. The worry is that recent FX restrictions, which appear to have exacerbated existing price pressures, further restrict the policy choices available.”

Also speaking on the backdrop of rising inflation, she said it will be difficult to proceed with important reforms such as longterm revisions to costly fuel subsidies and a VAT increase to sustainably boost non-oil revenue.

“In theory, lower oil prices and the goodwill generated by a successful election should be creating opportunities for reform in Nigeria. But the policies enacted to date, including a frozen interbank FX market and the controversial imposition of FX restrictions on imports, have significantly restricted the choices available. Inflation is arguably higher than it needs to be. A poorly functioning FX market discourages new FX inflows – both direct investment in the real economy and portfolio flows that might help to finance a larger fiscal deficit.”

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