Using anchor borrowers to reverse trade deficit and reduce pressure on naira – The Sun Nigeria

A Simply put, trade deficit means the country is importing more of what it needs, which usually results in lost jobs and lower economic growth. According to a report by the Bureau of Foreign Trade Statistics, First Quarter Report 2021, Nigeria spends an average of $10 billion and an estimated N508 billion in imports to fill its food and agricultural production gaps of primarily wheat, rice, poultry, fish and consumer-oriented foodservice. The country’s food insecurity is further aggravated by the rapid population growth.

Nigeria boasts of the largest population of young people in Africa, most of whom are unskilled and unemployed but can be gainfully employed in agriculture and food oriented services, hence the wisdom of the CBN Anchor Borrowers Fund.

CBN financing of the Anchor Borrowers Fund had so far provided loans to around 4.8 million smallholder farmers for food production. Thanks to this initiative, the country now produces more than 7.5 metric tons of rice per year. That’s a giant leap from four metric tons in 2015. Success, they say, breeds success. CBN is determined to fight back the same feat achieved in rice production in wheat production. With the symbolic display of the rice pyramids in Abuja and a follow-up in Kaduna, CBN demonstrated its ability to reverse Nigeria’s trade deficit and reduce pressure on the naira by eliminating major food imports.

If the Anchor Borrowers Fund is maintained, strictly controlled and even expanded, Nigeria will be on the road to self-sufficiency in food production. We must applaud the Governor of Central Bank and his team for their efforts, despite our conflicts of interest and convoluted policies, for doing everything possible to reverse Nigeria’s trade deficit and reduce the pressure on the naira through direct intervention in agriculture despite the demands for deeper reforms from the International Monetary Fund, World Bank and certain political elements making the voice of these multilateral institutions heard.

Multilateral institutions argue that a freely floating naira would help the economy withstand future shocks. But Nigerian authorities fear that inflation resulting from a sharp devaluation will push more people into poverty. Inflation rates are already high and people are finding it extremely difficult to survive. The cost of food, despite the high return recorded, remains unaffordable for the common man, hence the Central Bank must be cautious in accepting unsolicited monetary policy advice from the IMF and multilateral institutions.

Fortunately, Central Bank Governor Godwin Emefiele has consistently fended off pressure from the IMF insisting that the apex bank will continue to manage the naira as opposed to unregulated flexible floating of the naira. A strong naira is our pride, which is why the CBN must jealously guard its independence as the regulator of monetary policy free from excessive and misguided influence from compromised and conflicted politicians. What is happening to the Naira, and why is the Naira under pressure? Here are some key facts about the Naira and recent monetary policies:

The COVID-19 pandemic and falling oil prices have hit Africa’s largest economy. 90% of our foreign exchange earnings come from oil and gas exports. COVID has pushed the country into its second recession in four years. It narrowly emerged from recession in the fourth quarter, but the sharp decline in oil revenues led to a balance of payments deficit of $14 billion last year and depleted its foreign exchange reserves.

Insecurity in the north and other parts of Nigeria has affected food production, adding further pressure on the naira as the country rushes to meet the deficit amid rapid population growth. The value of imported agricultural products increased by 140.47%. It jumped 18.37% from the last quarter of 2020. While Nigeria spent more on importing agricultural products from outside the country valued at N630.2 billion, it only managed to export meager 12.2 billion naira worth of agricultural produce. On the value of agricultural imports, Nigeria spent N258 billion on importing wheat in the first three months of 2021, accounting for 3.8% of the total import share for the period – a trend that CBN is determined to reverse as part of measures to reduce not only Nigeria’s trade. deficit but also reduce the pressure on the naira. The government of President Muhammadu Buhari, which took office in 2015, has kept the currency artificially high out of national pride and to stem inflation.

During the last oil crash, in 2016, the Nigerian Central Bank created a system of multiple exchange rates in order to avoid a major official devaluation. These included a market-determined rate for investors and exporters called the Nigeria Autonomous Foreign Exchange Rate Fixing (NAFEX).

Faced with a budget deficit of 5.6 trillion naira ($15 billion) this year, the government is seeking a $1.5 billion loan from the World Bank. But in return, the World Bank wants Nigeria to do more to align the official exchange rate with the dollar and other rates, including NAFEX.

Left with little choice, the Central Bank of Nigeria devalued the official Naira rate twice last year and weakened the exchange rate for retail users. He also banned issuing the dollar at exchange offices while relying on banks. But how far banks have managed to keep up with public demand remains to be seen as black markets continue to thrive.

The CBN has nevertheless continued to gradually adjust the currency since the devaluations, limiting access to the dollar for unnecessary imports and implementing restrictive exchange policies to support the naira. After oil prices plummeted in 2014-2016, Nigeria raised interest rates to attract investors. But when crude prices plunged last year and foreign money fled, the Central Bank cut treasury bond yields to boost naira liquidity. But with the Russian-Ukrainian war and the global energy crisis, the price of crude has risen again beyond what it was 12 years ago. What will be the impact of the rising oil price on the Naira. How can Nigeria benefit from Russia’s oil and gas sanctions by US and European allies? It has been alleged by some that over 80% of Nigeria’s crude oil production is stolen and that NNPC cannot account for more than 100 million barrels of oil. It has also been speculated that NNPC has not been consistent and transparent with the remittance of its revenues to the federation account, as required by law. How do you hold NNPC accountable since oil and gas revenues make up over 80% of our dollar liquidity?

Academics like Patrick Curran, senior economist at emerging markets consultancy Tellimer, have said that the CBN’s refusal to allow further devaluation of the naira guarantees an investment loss when the currency is forced to adjust, to unless returns exceed overvaluation. I don’t agree with these arguments, especially when we haven’t put our people to productive use

Nigeria’s debt is one of the least productive in Africa, on which the government is relying to cover this year’s large financing needs through cheap local borrowing. We don’t need to live off the rental economy when we can plug financial leaks and repel endemic corruption. Additionally, the significant rebound in oil prices after the war with Russia has the potential to meet our offshore debt obligations and will further improve our dollar reserves.

To continue supporting the naira, the Central Bank had offered cheap credit to try to boost manufacturing and agriculture to reduce imports. Investment in agriculture is paying off, but more needs to be done to make food more affordable for people. The CBN-funded Anchor Borrowers fund remains a commendable effort that can be replicated in other sectors. The CBN has also eased rules on diaspora remittances to boost dollar liquidity, after the naira fell sharply on the black market.

With stubborn determination and consistency in monetary policy, the CBN could eventually achieve the stated goal of low and stable inflation, less currency shortages, parallel market depreciation and pressure reduced on the naira.

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