The Federal Government yesterday outlined a three-pronged strategy to boost its foreign exchange (forex) position with a view to reducing the pressure on naira and stabilize the economy.
Minister of Finance and Coordinating Minister for the Economy, Mr. Wale Edun, said the government was working to address the forex gap and backlog, which he identified as major pressure on the naira.
He spoke of plans to mobilise Nigeria’s strengths in oil revenues, substantial forex savings, liquidity in the banking system and international loans.
According to him, there is enough liquidity in the Nigerian banking system to clear the forex backlog, estimated at $5 billion, with appropriate mechanism put in place.
He said: “The priority is to stabilise the naira – that means getting in the additional liquidity – number one from oil revenue. We’re also looking at ways to tap Nigerian savings, in particular domestic dollar savings – both inside and outside the formal market. There’s a lot of cash in the Nigerian economy.”
The naira yesterday fell to a record low of N1,320/$ at the parallel market. The naira decline was attributed to strong demand on the parallel market, also known as the black market.
This represents 3.03 per cent (or N40.00) weaker than N1,280 recorded at the close of trading on Tuesday. The depreciation marked the lowest the naira has come to since October 26, last year, when it reached N1,300 against the dollar at the parallel market.
At the Investors and Exporters Window, the local currency traded at N931/$, creating N389 to dollar premium between the official and parallel markets.
The minister said the current forex backlog could easily be cleared if steps to lift oil revenue and mobilise dollars already in the economy succeed.
He said: “There is actually liquidity within the banking system and there should be a way of getting the banks to actually help with that backlog, either on a spot or a forward-rate basis.
“We believe that if we coral the dollars that are available, we can pay down that backlog almost in one fell swoop.”
The government expects oil production to ramp up to 1.78 million barrels per day, from about 1.49 million barrels last month.
The anticipated rise in production will stimulate the economy and bolster its coffers.
Domestic refining of crude is expected to resume soon at the state-owned Port Harcourt Refinery and from the private-run Dangote Refinery in Lagos. They will reduce gasoline imports and ease currency squeeze.
Edun said the government was also working to attract international loans from the World Bank and through issuance of Eurobond.
He said the government was optimistic of securing a $1.5 billion budgetary support loan from the World Bank, although the loan request is currently at the discussion level.
He said: “We’re hoping to get $1 billion or $1.5 billion from the World Bank” for budgetary support, Finance Minister Wale Edun said yesterday in a Bloomberg Television chat.
He added: “It is a matter of discussion at the moment, but we think we will get the support because we are continuing with our reforms.
”What we’ve done with fuel subsidies, what we have done in terms of the foreign-exchange market reform, deserve support. We’ve done enough and we deserve to be rewarded imminently.”
Besides, Nigeria has the confidence of having access to the Eurobond market and may look to tap it later this year, if rates move sufficiently lower.
“The major issuers and the book runners have told us that there should be a window for Nigeria in the Eurobond market,” Edun said.
President Bola Ahmed Tinubu has carried out very tough reforms, including the scrapping of costly fuel subsidies and relaxed its exchange-rate policy.
The reforms, which got the acceptance of international investors, triggered a surge in the cost of living, with inflation hitting a 27-year-high of 28.9 per cent last month.
The naira also slumped by about 50 per cent in value against the dollar.
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