The World Bank has recently suggested that Nigeria should consider adopting a unified foreign exchange (Forex) market, thereby eliminating the multiple Forex markets currently in operation.
According to the World Bank’s ‘Macro Poverty Outlook for Nigeria: April 2023’, the unification of forex markets has been identified as a key reform that could bolster the country’s economic recovery.
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The global financial institution has stated that the foreign exchange reform is expected to address the issue of exchange rate distortions and restore macroeconomic stability.
The World Bank has identified several factors contributing to weak macroeconomics, including declining oil production, costly fuel subsidies, and monetization of the fiscal deficit.
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The country’s macroeconomic stability has been compromised due to a number of factors, including a reduction in oil production, expensive fuel subsidies, distortions in the exchange rate, and the fiscal deficit being monetized.
According to a recent report, the economy can be bolstered by the authorities through the restoration of macroeconomic stability. This can be achieved by implementing reforms that aim to increase both oil and non-oil revenues, tightening monetary policies to reduce inflation, and unifying the multiple FX windows. The report also suggests adopting a single, market-responsive exchange rate to further strengthen the economy.
The World Bank has aligned its recommendations with the stance of President-elect Bola Tinubu, who has expressed support for foreign exchange reform.
As the February 2023 presidential election results continue to be disputed by political rivals Peter Obi and Atiku Abubakar, the administration of Tinubu is poised to assume power on May 29, 2023.
During his campaign, Tinubu pledged to synchronise the fiscal and monetary policies in order to promptly stabilise the value of the naira against the US dollar.
In a recent statement, the President-elect has expressed his intention to collaborate with the Central Bank of Nigeria (CBN) in order to reduce the exchange rate to N200 during his initial term in office.
The administration has announced plans to work closely with the Central Bank to synchronise fiscal and monetary policies. The aim is to stabilise the value of the naira against the US dollar and other currencies, with a focus on boosting the supply of foreign currency and moderating demand. This move is expected to have an immediate impact on the currency’s value and strengthen it in the short term.
According to Tinubu, the immediate objective is to attain a naira/dollar exchange rate of 300 naira/US$. He further added that the long-term plan is to gradually reduce the rate to less than 200 naira within the next four years.
