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Forex policy hurting Nigeria’s economy —Bloomberg

Bloomberg, on Monday, wrote in its editorial that the control being exercised by the government on the country’s foreign exchange management has an adverse effect on the economy.

Bloomberg, a financial software, data and media company, said the management of foreign exchange has resulted in the contraction of the economy, an 11-year high inflation rate and a high rate of unemployment.

It said in the editorial, “One concrete step President Muhammadu Buhari could take to address the crisis would be to eliminate the country’s disastrous foreign exchange controls.”

According to Bloomberg, the Central Bank of Nigeria (CBN) readily plays along with the government in exercising excessive control on the exchange rate.

“Despite allowing the devaluation of the naira in June, it (CBN) is continuing to manipulate the exchange rate — discouraging foreign investors, creating a crippling shortage of dollars for businesses that need to import, and feeding a currency black market. To keep down the street price of vanishing dollars, Buhari’s government has arrested informal money-changers. More capital controls are in the works,” the media organization said.

Proffering solution to the situation, Bloomberg said, “Dismantling Nigeria’s foreign exchange controls will doubtless cause at least a short-term rise in inflation. Yet doing so will not only draw foreign investment and make the economy more productive and competitive, but also cut off a conduit for corruption. Buhari can cushion the blow for Nigeria’s poor through targeted cash payments — an approach Nigeria has used in electronically delivering subsidies to poor farmers.”

It added, “That same mechanism could also shield the poor from the regressive impact of an increase in Nigeria’s value-added tax — which is relatively low but a potentially valuable source of additional government revenue.

“There are other ways to stimulate the economy, of course. But Nigeria’s Senate rejected Buhari’s three-year spending blueprint and an ambitious campaign to borrow $30 billion abroad because they lacked details. Meanwhile, his reluctance to sell off state-owned assets has undermined other efforts to raise revenue.

“To be sure, Buhari faced ugly circumstances when he took office in May 2015. The plunge in oil prices had left the economy reeling and government coffers bare, and attacks by Boko Haram were ravaging the country. Yet while some progress has been made fighting both terrorism and corruption, Buhari’s rigid leadership style has made the country’s economic problems harder to solve.

“Buhari’s election and pledges of good governance rightfully raised expectations across Africa. To fulfill those hopes, however, he will have to demonstrate more flexibility.”