Expert sees naira adjustment as long-term solution to Nigeria’s economic crisi
In the absence of short- term solution to Ni- geria’s immediate economic challenges, adjusting the nation’s cur- rency, the naira, is seen as long-term solution, accord- ing to David Cowan, Africa Economist/managing di- rector, Citi Research.
“There is no short-term solution. But the long-term solution is to let the naira adjust. If you let the naira adjust it will increase the amount of revenue going to the government, which will help to control its fiscal spending.
“It will push up infla- tion in the short term, but hopefully that should also drive production, espe- cially agricultural sector and food will come into the market. A good portion of the consumer price index here is determined by food,” he said Tuesday, in an in- terview with journalists in Lagos.
He said that Nigeria did a lot of savings for rainy day and then ran the savings down in the last few years.
“It did not borrow a lot of money but ran its sav- ings. When it got hit by oil price shock, it does not have a lot of money to allow it make a gradual adjust- ment, that is why the naira depreciated,” Cowan told journalists on the sideline of EuroFinance’s fifth con- ference on ‘Treasury, Risk, and Cash Management in West Africa, in Lagos.
Nigeria’s foreign reserve has declined to $29.03 as at June 22, 2015, this is 588.9 percent below Algeria’s $200 billion foreign reserves. However, naira on Tues- day gained N1.34k or 0.67 percent over the US dollar at the inter-bank market.
After trading on Tuesday, the local currency closed at N197.32k/$ as against N198.66k/$ traded the pre- vious day, according to the data obtained from Finan- cial Markets dealers Quota- tions (FMDQ). Naira on Monday weak- ened against the US dollar by N1.24k or 0.63 percent at the inter-bank market, after the Central Bank of Nigeria (CBN) kept the foreign ex- change policies unchanged.
Cowan said the nation’s economy, the powerhouse of West Africa, was at cross- roads due to falling oil pric- es, the devaluation of the naira and uncertainties of the recent elections, adding that government needed to make drastic adjustments to curtail spending in line with the present realities.
According to him, the new government’s prior- ity should be the develop- ment of the power sector to ensure steady supply of electricity in the country. “Government needs to fix power for the economy to grow, electricity is the major thing that drives in- vestment in any particular country,” Cowan said.
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