- Title: Nigeria's central bank seeks way out of economic crisis with new forex policy.
- Date: 14th January 2016
- Summary: LAGOS, NIGERIA (JANUARY 13, 2016) (REUTERS) (SOUNDBITE) (English) DELE SOBOWALE, ECONOMIST, SAYING: "Nigeria has been depending too much on crude oil, now crude oil revenue is dropping. They have to look for money from somewhere else. VAT is a user tax, if you don't use you don't pay, if you use, you pay. Now if you have to go to VAT, you can adjust VAT such that some luxury goods are taxed higher than some common goods in order words sugar you buy in supermarket is charged differently from maybe car or perfume, you know, you could make those adjustments to VAT whereby certain items are 30 percent, 20 percent others are left at 5 percent in order to boost the revenue."
- Embargoed: 29th January 2016 17:15
- Keywords: Economic Crisis Forex Oil prices Economy Commercial Banks Dollar Sales
- Location: NIGER DELTA, LAGOS AND ABUJA, NIGERIA
- City: NIGER DELTA, LAGOS AND ABUJA, NIGERIA
- Country: Nigeria
- Topics: Currencies/Foreign Exchange Markets,Economic Events
- Reuters ID: LVA006400V97B
- Aspect Ratio: 16:9
- Story Text: Nigeria's central bank is halting dollar sales to non-bank foreign exchange operators and letting commercial banks accept dollar deposits in a move to shore up dwindling foreign reserves.
Godwin Emefiele, the bank's governor said the sale of foreign exchange to bureaux de change would be discontinued because they were using up the country's foreign reserves for illegal transactions and selling the dollar at 250 naira compared to the official central bank rate of 197 naira.
The currency hit a record low of 282 per dollar on the unofficial market on Monday (January 11) after the central bank's announcement.
Abdullahi Abdullakeem, a forex trader in Lagos was serving customers at his bureau when the new regulations were announced.
"I think the new development is a very nice idea to me. Why I said it's a nice idea is because if you look at Nigerian situation right now, I think the new government, are trying to amend a lot of things. So with that amendment, some people will surely go down and other people will surely come up," he said.
The move comes days after a visit by the head of the International Monetary Fund, Christine Lagarde, when she told lawmakers that the IMF did not support foreign exchange restrictions.
Dele Sobowale is an economist based in Lagos. He says it will be difficult to establish confidence in the official rate.
"The CBN (Central Bank of Nigeria) foreign policy or policies are confusing everybody now and they don't even allow one policy to be properly assimilated before they reverse it, or they change it or they amend it and the private sector or the people in the private sector who are affected by these changes are still trying to adjust to one stream of changes, policy changes and they are not fully adjusted and you are now reversing," he said.
The decision to allow commercial banks to accept cash deposits of foreign currency reverses the restriction imposed last year when such deposits were banned to curb currency speculation.
Nigeria is facing its worst economic crisis in years as it must import most of what it consumes due to limited manufacturing.
It is also facing an insurgency by Islamist group Boko Haram, which has killed thousands and displaced more than two million people in the remote northeast and raised concern among potential investors.
Nigerian President Muhammadu Buhari, elected on a pledge to tackle corruption, says his government is working on efforts to revive Africa's largest economy and is seeking ways out of a crisis fuelled by plunging oil prices.
Monthly foreign earnings are said to have plummeted as low as $1 billion from highs of $3.2 billion while demand for foreign exchange has risen sharply over the past decade.
"We've already seen the immediate impact. The exchange rate has gone up because that money in the Bureau de Change, there is no check against what is happening on the streets, the parallel market. Now the parallel market now becomes the only source of foreign exchange for people who want to transact businesses. The bureau de changes at least give a smaller margin from what you get from the bank but now on the streets, the naira is just getting bashed anyhow and there is no more control," said Sobowale.
Nigeria, an OPEC member state that depends on oil sales for about 95 percent of its foreign reserves, has been hammered by a collapse in global oil prices, which has triggered a slide in its naira currency.
The central bank says the last time the country had oil prices at about $50 per barrel for an extended period of time was in 2005. The average import bill was 148.3 billion naira per month at the time.
The average import bill for the first nine months of 2015 is 917.6 billion naira.
The country is now trying to diversify away from oil to sectors like Agriculture to boost earnings.
"Nigeria has been depending too much on crude oil, now crude oil revenue is dropping. They have to look for money from somewhere else. VAT is a user tax, if you don't use, you don't pay, if you use, you pay. Now if you have to go to VAT, you can adjust VAT such that some luxury goods are taxed higher than some common goods in order words sugar you buy in supermarket is charged differently from maybe car or perfume, you know, you could make those adjustments to VAT whereby certain items are 30 percent, 20 percent others are left at 5 percent in order to boost the revenue," said Sobowale.
To avoid devaluing the currency, a stance so far supported by Buhari, the central bank adopted increasingly stringent foreign exchange rules last year and effectively banned dollar access for the purchase of 41 items, which has also been criticised at the World Trade Organisation by the United States and the European Union. - Copyright Holder: REUTERS
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