Professor of Finance and Capital Market, Uche Uwaleke, has said that except the Federal Government diversify its export base and increased foreign direct investments (FDIs), the liquidity challenge in the forex market would persist.
Uwaleke, who gave the advice Monday in Abuja, added that the country’s weak economic indices would make it difficult for the government to implement the naira float.
In a bid to address the widening exchange rate gap, the federal government resorted to a managed float of the naira on the I&E Window. However, this policy has failed to halt the fall of the naira.
The exchange rate for a dollar to naira at the official window is N751.1 as of Monday, 11 September 2023, according to the data published by CBN. While at the parallel market, the naira exchanged for N925 to a dollar in Lagos.
Experts have said that with a larger part of Nigeria’s revenue still coming from oil, it would not be easy for the government to address supply side constraints in the FX due to the country’s inability to meet it’s OPEC quota.
“The only sustainable solution to deal with the liquidity challenge in the forex market is to have multiple streams of forex comprising export proceeds and foreign investments.
“Nigeria’s economy is not ready for a complete float of the naira due to weak economic fundamentals.
“Regrettably, over 90% of forex inflows still come from crude oil sales. A diversified export base is required to check volatility in a forex market where the exchange rate is determined by market forces. This is still lacking in Nigeria.
“On the demand side, I support the idea of curbing dangerous currency speculation by making the trading in forex outside the Banks and BDCs illegal. By doing so, the CBN can be in a position to monitor activities in the forex market,” he said.
