The Institute of Chartered Accountants of Nigeria (ICAN) has called on the federal government to ensure the timely appointment of a substantive Governor for the Central Bank of Nigeria (CBN) in order to provide certainty, boost investors’ confidence and ensure the attainment of objectives that dictated the unification of the country’s multiple foreign exchange rates.
The call by the institute was contained in a statement titled, “ICAN Position Paper on the Unification of Exchange Rates in Nigeria,” issued yesterday and signed by the President of ICAN, Dr. Innocent Okwuosa.
The professional body also stated that the appointment of a substantive CBN’s governor would provide a credible long-term direction for monetary policies’ formulation and implementation.
President Bola Ahmed Tinubu had suspended the CBN Governor, Mr. Godwin Emefiele, from office on June 9, 2023, with immediate effect and had appointed Mr. Folashodun Adebisi Shonubi as the acting governor of the central bank.
Owing to this, Okwuosa stated that the, “timely appointment of a new CBN’s governor will provide a credible long-term direction for this policy. This will provide certainty and stability, and boost investor’s confidence in ensuring inflow of capital into the country.”
He, however, pointed out that floating the exchange rate was not a silver bullet because it would, “generally lead to short-term pains that will yield long-term gains.”
ICAN, therefore, provided a number of recommendations that would ensure the attainment of the policy objective of unifying the foreign exchange rates.
These included, the “effective and consistent implementation of the policy to ensure that no uncertainty is created by the mode of implementation and there is constant communication with key stakeholders such as businesses and investors amongst others.”
Other recommendations included the review of the prohibited list of goods that are barred from accessing the official FX market to ensure that, “demand is not segmented. This should be complemented by adopting appropriate fiscal and/or trade policies where necessary, for example, by increasing import tariffs etc., following a data driven analysis and robust stakeholder engagement.
“Review and amend certain tax laws that require taxes to be paid in foreign currency thereby creating artificial demand for foreign exchange.
“Complement this policy with fiscal reforms and discipline, i.e., removal of the petrol subsidy (which was recently executed), reduction in the cost of governance, harmonisation of multiple tax laws etc.
“And benchmarking the Nigerian foreign exchange market with emerging international foreign exchange markets such as Malaysia, Mexico, South Africa, Brazil and Colombia including learning lessons to achieve macroeconomic stability and integration into global value chains.”
ICAN also recommended supplementary policies and initiatives that would boost supply of FX, which, “should include increase in our crude oil production to meet OPEC quota, local refining of petroleum products to reduce our import bill, and incentives to aggressively revamp our agricultural and manufacturing sectors for local and exportation purposes.”
Okwuosa also noted that the new CBN FX rates’ unification policy has its implications even though it was still at its early stages of implementation and has been greeted with positive reactions from the investment and professional communities.
He highlighted key implications of the unification on the Nigerian businesses and economy to include: “It is expected that the unified exchange rate will serve as a catalyst for investment flows into the country, which will boost our foreign exchange reserve, grow the economy, create employment, and improve the quality of life.
“Foreign portfolio investors are expected in the near term whilst foreign direct investors that require more investment appraisal time will come in subsequently.
“The inflow of capital from foreign portfolio investors into the Nigerian capital market will help to grow the market and allow companies to raise capital efficiently to finance their growth ambitions.”
In addition, “government’s revenue will increase in Naira terms resulting in a higher tax/revenue to GDP ratio. Corporate tax collection may, however, decline as many businesses crystallise foreign exchange losses due to the higher exchange rate,” he said. Nevertheless, ICAN added that, “the service cost of the government’s external debt, which is denominated in foreign currency i.e., $42billion will increase by N12 trillion.
“The total debt to Gross Domestic Product ratio will also increase by 5.0 per cent due to the total debt rising to N90 trillion. On the other hand, there should be some cost savings as the government discontinues the various foreign exchange interventions e.g., Naira4Dollar, RT200 etc., which cost tens of billions of Naira.
“Finally, the national budget will need to be evaluated with the new foreign exchange rate. The likely impact is a possible reduction in the budget deficit if the government’s foreign exchange revenue exceeds foreign exchange obligations, an increase in the budget deficit will arise if otherwise.”
Dike Onwuamaeze
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