Lagos – Two financial experts on Thursday said that implementation of the flexible foreign exchange policy would impact positively on the nation’s foreign reserves.
They told the News Agency of Nigeria (NAN) in Lagos that the positive impact would come from the increase in Diaspora remittances and Foreign Portfolio Investments (FPIs).
The Head, Banking and Finance Department, Nasarawa State University, Keffi, Dr Uche Uwaleke, said that the nation’s stock market would also witness a boost due to an increase in FPIs.
Uwaleke said that some foreign companies and airlines that exited on account of capital controls might reconsider their exit now that the controls had been relaxed.
He said that Nigeria would likely be re-admitted into the JP Morgan bond index as a result of the flexible exchange policy.
Uwaleke stated that the wide gap between the interbank and parallel market rates would close, thereby reducing opportunities for round-tripping and similar abuses in the forex market.
On the negative implication of the policy, he said that the value of the naira would likely weaken in the short run since it would be determined by market forces in an import-dependent economy.
Uwaleke said further that spike in headline inflation from the current 15.6 per cent should be expected to result due to imported items.
He also said that the policy might hurt commerrcial banks with a large portfolio of dollar-denominated risk assets.
Uwaleke said that, “their non-performing loans may shoot up; affecting their bottom lines and possibly leading to further retrenchment of staff.’’
The National Secretary, Independent Shareholders Association of Nigeria (ISAN), Mr Adebayo Adeleke, said that the flexible exchange plan was initially conceived as a special forex window for fuel importers.
Adeleke said that the government decided on the policy due to pressure on the nation’s currency.
“The naira has lost over 80 per cent of its value in a year or so. The purchasing power of an average Nigerian is eroded.
“The standard of living is heading southwards. Poverty is encroaching. Mitigating policies are desirable,’’ he said.
Adeleke said that government must accelerate diversification of the economy with particular attention on growing non-oil exports to achieve sustainable growth.
He said that focus must also be on providing the basic needs such as clothing, shelter and foods.
Adeleke said that given the level of forex demand, the policy would likely ameliorate but would not totally eliminate the pressure or challenges of the economy.
NAN reports that the Central Bank of Nigeria (CBN) Governor, Mr Godwin Emefiele, on June 15 released modalities for the long-awaited implementation of the flexible foreign exchange policy.
Emefiele announced the introduction of a two-way quote, which means that buyers and sellers would state prices and quantities they are willing to buy and sell.
He also maintained that the 41 items banned in 2015 from access to forex for imports remained banned.
Emefiele said that the exchange rate would be market determined, adding that the CBN would also participate in the market occasionally. (NAN)
