Naira already devalued —Utomi; No, it is not —Finance Ministry

Professor Pat Utomi, on Monday, decried the ongoing devaluation/exchange rate conversation as wrongly premised, maintaining that the naira had already been devalued.

This was even as naira experienced reprieve on Monday as it appreciated by N5 to close at N370 to the dollar at the parallel market. The greenback had been exchanged at the rate of $1 to N375 at the weekend.

The official exchange rate, however, remained N199.50.

The Professor of Economics said that the Nigerian government could not shy away from the rate of the currency at the parallel market and insist on selling naira at the interbank rate, thereby giving room for some Nigerians to continue to benefit from the situation.

He said, “The whole exchange rate conversation is wrongly premised. Some want the currency devalued, others do not. The naira is devalued already. It is those who do not understand the issue that are creating the problem. The value of the naira is known to everyone. What matters in this conversation is not the nominal value of the currency, what matters is the stability of the currency such that people can anticipate, plan and engage accordingly.”

However, the Ministry of Finance, on Monday, insisted that the currency had not been officially devalued.

The Special Assistant to Finance Minister, Mr Festus Akanbi, when contacted on Monday said, “Naira has not been devalued, that is why you have the official exchange rate at N199.50 and the parallel market rate at N370 to the dollar.”

Akanbi explained that the resolve of the government not to devalue the currency was informed by its intention to protect the nation’s economy from being subjected to abuse by portfolio investors.

“Pressure is being mounted on the government both from within and outside the country to devalue the currency. If that is done we may have more dollars because more portfolio investors would come to the country.

But the danger in that is that as soon as there is a slide in the economy, the same people will leave and take their investments to other jurisdictions. So, we would be worse off.

“The government is determined to protect the currency and the economy from opportunists.”

Utomi noted that administrative control of the currency rate by the Nigerian government was difficult because of high cost, adding that Nigerians did not possess such high level of discipline for such control to be workable in the country.

“I have heard people say that it is importers that want the naira devalued, that it is those that patronise local products that do not want the naira devalued. Ah! I have never seen that kind of illiteracy in public conversations. It is the direct opposite. It is those who import things that will not want the naira devalued, so that what they import can be cheap; if the naira is devalued, what they import will become expensive.”

However, Utomi described the current economic challenge as a temporary blip calling for a diversification to tourism, as a short term measure, and a drastic cut in costs towards ensuring that existing resources are adequate enough to stabilize the nation’s economy.

Noting that Nigeria had experienced a similar situation in the 1980s, Utomi added that diversification would ensure that all zones become productive and impactful on the value chain. This, he said, would ensure that all zones are endowed to become globally competitive.

While hoping for an oil price rebound, he called for more shrewdness in the management of revenues derived from oil.

“This is a temporary blip. Nigeria will not permanently be in a situation where it cannot afford to pay for its imports. Nigeria has experienced a sudden drop in its foreign income. What Nigeria can do is to cut its cost dramatically. When Nigeria experienced similar economic challenge in 1976 during Olusegun Obasanjo’s regime as Head of State, Obasanjo quickly did what we called low profile. The Head of State’s official car was a Peugeot 504, and nobody in the whole service drove a bigger car. So, we trimmed our sales.

“We are in a similar situation today but members of the Senate intend to purchase Sports Utility vehicles. The motorcades of governors are getting longer. So, there is a delusion on the part of the political class about Nigeria’s reality. When a country experiences a temporary blip, what may be done is borrow money to get over these difficult times while you reposition your economy either by diversification or hoping for oil prices rebound.

“It was easier back then in 1982 because Nigeria had a blocked currency, that is, the value of the naira was administratively determined by the Central Bank of Nigeria. Today, the currency rate is expected to be determined by the market. The market states that the value of the currency to the dollar is N400.

“It does not matter what the President thinks, what Pat Utomi thinks, the value of the dollar is N400. The only thing is that the Nigerian government has decided that it will sell its own dollars at a certain amount, not N400, probably N198. So, how does the government determine who it will sell a dollar to at N198? You can carry out all the anti corruption campaigns of the world. Someone sees that he can buy the dollar at N198 and others buy at N400 will seek to make some money. Regardless of all the army of the world in place, we must understand that human beings are greed driven.

“I am not saying that administrative decision making is not possible but the costs are so high and the level of discipline required is not available in this environment that I think it would work out. We should cut cost dramatically so that the resources we have can stabilize the country. Government has become bloated. Now is the time to feel the pressure and begin to make changes, even constitutionally,” he said. (Nigerian Tribune)