By John Ikani
The House of Representatives on Wednesday directed the Central Bank of Nigeria (CBN) to halt any plan to further devalue Nigeria Naira, saying that such a move will only hurt the economy further.
The House directed its Committee on Banking and Currency to ensure compliance and report back to the House in two weeks for further legislative action.
The reps move followed the adoption of a motion on notice brought by Hon. Bamidele Salam, (PDP, Osun), which drew attention to further planned devaluation of the Naira by the Apex bank.
Presenting the motion, Salam recalled that in February, the Governor of the Central Bank of Nigeria Godwin Emefiele, while addressing the Bankers Committee at a summit on the economy in Lagos, informed the committee about the Naira’s devaluation against the USD.
He noted that the official exchange rate stands at 410 to the dollar. That’s 7.6% weaker than the rate of 379 published on the central bank’s website.”
Salam further noted that while the value of the Nigerian Naira relative to the US Dollar has declined by 9% in the last 6 months, the South African Rand and Ghanaian Cedi have appreciated by 11.4% and 1%, respectively.
“Clearly, Honourable speaker, distinguished colleagues, all is not well with the naira and whatever policy is being adopted to manage it at the moment,” the lawmaker argued.
He noted that the CBN has adopted multiple exchange rates since last year in a bid to avoid an outright devaluation.
According to him, the official rate used as a basis for budget preparation and other official transactions differs from a closely controlled exchange rate for investors and exporters known as the Nigerian Autonomous Foreign Exchange Rate Fixing Methodology (Nafex).
What the lawmaker said about devaluation of the naira
“Devaluation is likely to cause inflation because imports will be more expensive (any imported good or raw material will increase in price) Aggregate Demand (AD) increases – causing demand-pull inflation.
“Firms/exporters have less incentive to cut costs because they can rely on the devaluation to improve competitiveness. The concern is that the long-term devaluation may lead to lower productivity because of the decline in incentives.
“Devaluation of the Naira makes it more difficult for Nigerian youths especially in the IT sector whose businesses are online and must necessarily transact businesses in the US dollars; it also reduces real wages. In a period of low wage growth, a devaluation that causes rising import prices will make many consumers feel worse off.
“An enormous and rapid devaluation may scare off international investors. It makes investors less willing to hold government debt because the depreciation effectively reduces the actual value of their holdings. In some cases, rapid devaluation can trigger capital flight;
“If consumers have debts, e.g. mortgages in foreign currency, they will see a sharp rise in the cost of their debt repayments after a devaluation. This occurred in Hungary when many had taken out a mortgage in foreign currency, and after the devaluation, it became costly to pay off Euro denominated mortgages”, the lawmaker added.