Nigeria loses N8tr to FX arbitrage in three years ⚠️
• Realistic exchange rate will add N4tr to federation account in 2023, says Yusuf• Three years after, rate harmonisation still illusionThis came as the Central Bank of Nigeria continues to dilly dally on the exchange rate convergence, three years after it promised same.
Whereas the black market rate averaged N650/$, the pseudo official window rate window finished at suppressed N447/$ on average. That puts the arbitrage at N203/$, pushing the CBN’s FX subsidy in the year to about N3.65 trillion. As for the parallel market, the price oscillated around N450/$, which translates to an arbitrage of N100 per dollar. With the total FX sale by the CBN pegged at $17.5 billion in the COVID-19 year, as it were, the difference between what the CBN realised from the sale and the market value was N1.75 trillion.
“The Nigerian economy is heavily burdened and encumbered by two major subsidy regimes: the fuel subsidy regime and the foreign exchange subsidy regime. Huge sums of revenue can be unlocked from these subsidy regimes if appropriate reforms are implemented. He said the negative impacts of FX subsidy have been grossly understated in recent years, leading to a loss of trillions of naira that would have accrued to the Federation Account.
The 2023 budget exchange rate benchmark is N435.7/$, which is an N11.52 discount of the current I&E window. It is almost N300/$ behind the parallel market rate. “It should be stressed that this is not a devaluation proposition. It is a strategy meant to correct distortions in the forex ecosystem, boost government revenues, curb corruption in forex transactions and enhance liquidity in the forex market. It will also improve efficiency in forex allocation, promote transparency in the forex environment and raise investor confidence in the Nigerian economy.”
He stressed that the CBN, which has stressed its commitment to rate harmonisation, is a victim of “regulatory capture”, a similar problem other institutions, including the NNPC Limited and the National Insurance Commission have faced.
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