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IMF, CBN clash over multiple exchange rate


It was a healthy academic excercise over the pros and cons of the multiple exchange rate regime yesterday.

Sparring were the International Monetary Fund (IMF) and  the Central Bank of Nigeria (CBN).

The altercation between IMF’s Senior Resident Representative and Mission Chief for Nigeria Amine Mati and CBN’s Director, Monetary Policy Department Moses Tule, was on the impact of the multiple exchange rate policy on inflation, trade and the economy’s growth.

The two officials spoke at the Special Policy Dialogue Colloquium, entitled “Policy Change – The Enabler of Sustainable Growth” organised by the Financial Derivatives Company (FDC) in Lagos.

Mati insisted that the CBN policy was crippling growth and spiking inflation but Tule said the apex bank did no wrong with the introduction of multiple rates, based on local economic realities.

The IMF chief said: “Countries with multiple exchange rate have lower growth and higher inflation. A more flexible exchange rate in a reform scenario in Nigeria could boost Gross Domestic Product in the medium term. Nigeria has Investors’ and Exporters Forex Window, CBN official rate, parallel market rate, Retail Secondary Market Intervention Sales (SMIS) and wholesale SMIS and these sniffle growth and raise inflation”.

But Tule refuted the claims, saying the apex bank has done nothing wrong by having these multiple currency regime, ‘where they exist’. He said the examples cited by Mati did not apply to Nigeria’s situation.

He said: “Mati’s presentation showed us multiple exchange rates in advanced countries between 1955 and the year 2000. That is 45 years. In the midst of that, these advanced economies were also administering a stream of other incentives to different sectors of their economies, in the form of subsidies. Multiple currency practices in Nigeria, if identified, is less than 10 years old. Which means between 1955 and 2000, the advanced countries had the opportunity to put requisite infrastructure and made things correct before removing multiple currency practices.

“What is wrong if we give preferential treatment to importers of oil, so that they get dollar at N305 to dollar, and then deliver it to Nigerians at certain price, so that it does not extend or transmit into inflation?”

Tule said Nigeria had a shock on inflation in June 2016, and it was not driven by monetary policies but by three key factors.

He said there was a change in oil prices, followed by repricing of electricity tariffs, and depreciation of the currency. All these, he said, fed into inflation, so if we had inflation rising up to 18 per cent, it was not monetary factors but by reform factors, which is necessary for the economy.

Tule said the CBN was able to move inflation from 18 per cent to around 11 per cent and  it is still trending downwards adding that the apex bank target of six to nine per cent inflation rate, which is a long term target.

The CBN official said: “Moving towards that target, we can move from 11 per cent to nine per cent and then to six per cent. The temporary exchange rate regime that seeks to achieve the long run term need of inflation can solve current problems.

“Monetary policy solves current problems and in the long run, the fiscal policy will solve the structural issues. Even if you have that in perspective, then multiple currency practices, which Amit said he identified here, are very temporary measures”

“Our desire is to address certain shocks that the economy is experiencing in the interim. Expecting that in the long run, fiscal policies, working with monetary policies and structural policies, would have established a macro framework for economic growth.

“Clapping with one hand, we now noticed that from the perspective of the IMF, which is a departure from what the Fund agreed in 2012 at the Spring meetings. The IMF now tells us that due to multiple exchange rate, there is trade deficit, slow growth, high inflation. It means slow growth comes due to exchange rate misalignment, structural deficiencies come because of exchange rate misalignment.”

Continuing, he explained that in the midst pf the global financial crisis, the IMF agreed that going forward, there is a need that to look at the countries, relative to the conditions in which those countries are.

“But now that we are out of the crises, the IMF has gone back to the text book economies. The Fund and its group attacked us when we introduced the 41 items restriction to forex access. They said it was not acceptable. But later, they said we have achieved a measure of success. The Fund accept that we have moved from where we are, we are heading forward. We cannot go backwards agin,” he said.

Replying, Mati argued: “If government wants to subsidize fuel, it should not be by selling forex at cheaper rate, but it should be bold enough to put the cost of the subsidy in the budget”.

He emphasised that exchange rate unification should be a policy-driven decision that the government must make.

He said: “Multiple exchange rates have different implications across different countries in the world. We have analysed the situation in Sub-Saharan Africa and have noticed that each country is able to succeed as a result of the policies that have been put in place to counter challenges.

“The IMF’s policy has been consistent on this issue, such that, we advise for the unification of exchange rates and the CBN and Economic Recovery and Growth Plan are already working in this direction to ensure that the country has a unified exchange rate.”

Also speaking, CEO Economic Associates and former member, Economic Management Team, Ayo Teriba, faulted the implementation of multiple exchange rate in Nigeria.

Teriba said: “I think that by focusing on exchange rate and talking about multiple exchange rates, we missed the point fundamentally.  Both the CBN and IMF are chasing shadows by talking about exchange. Multiple exchange rates are symptoms of the problem. The problem is dollar supply shortage.

“While are you being about the bush, creating different windows. The IMF can educate us on what Egypt did to unify her currency. The CBN by restricting forex supply on 41 items is wrong. It means they were trying to suppress a demand problem. So, what has Nigeria done since 2016 to boost supply? If you boost dollar supply, the exchange rate will converge.”

FDC Managing Director/Chief Executive Officer Bismarck Rewane, said: “Greater trade can trigger deep structural change by increasing production efficiency and spreading knowledge and technologies across countries. In this case, Nigeria needs complementary structural reforms that can boost efficiency in sectors where we have competitive advantage.”

Rewane also made a strong case for a unified exchange rate regime to jump start the economy. He said, “Unifying the exchange rate will impact the Nigerian economy more positively than the current multiple exchange rate regime does, which creates opportunity for arbitrage.”

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