FX Crisis: Nigeria should explore other alternative currencies for imports — Expert

Financial expert and head of investment and research at Meristem Securities Limited, Praise Ihensekhien, has advised the federal government to adopt other currencies for import-related transactions to reduce Dollar dependence and preserve the stability of the Naira in the forex market.

Ihensekhien shared this insight during the Economy Outlook webinar hosted by Nairametrics on Saturday.

According to her, if such policy is implemented, the need for the greenback will significantly diminish, providing the Naira with some respite in the forex market.

While lauding the CBN’s efforts to stabilize the Naira through numerous policies, Ihensekhien pointed out that there is a need for more action, particularly in boosting the supply.

She noted CBN still requires substantial Dollar inflow into the foreign exchange market.

• “I think another thing that we can explore as a country is to have other arrangements with other countries to pay for whatever it is that we are importing in a different currency and not just USD. This will reduce the demand for USD.
• “My expectation is that the CBN continues to float OMO bills because these bills are very instrumental in determining the fixed income environment.
• “And we know that this will also translate into the interest rate being very attractive very Naira investment.
• “We need to see more of foreign direct investment comes into the country. They will not come in if the economy is not stable, if they’re not seeing a good macroeconomic environment that can ensure stability of return,” Ihensekhien said.

CBN to explore multilateral lending with other Central Banks

In addition, the financial expert said the CBN can also explore multilateral lending in terms of concessionary facilities that can be extended over a long period of time.

According to her, these loans will significantly result in inflow of Dollars coming into the country.

Ihensekhien said, for instance, that an inflow of around $10 billion into Nigeria, accompanied by a long-term agreement, would be extremely beneficial.

• “The CBN can definitely explore speaking to and having bilateral agreements with other Central Banks that will significant inflow of Dollars coming into the country.
• “If we have a significant inflow of like $10 billion coming into the country, that comes with an extended tenure of agreement, it will be very instrumental. So we need to see those inflows coming in.
• “We’ve seen the portfolio investment increase which is very good. Foreign portfolio investment have increased. However, we’ve not gotten to where we were in 2020,” she added.

What you should know

In its efforts to achieve price stability in the foreign exchange market, the Central Bank of Nigeria has implemented various macroeconomic measures recently to tackle the country’s foreign exchange crisis.

Under the leadership of Yemi Cardoso, the CBN has rolled out nothing less that fifty circular targeted at reforming the foreign exchange market and ensuring currency stability in the country.

• Subsequently, the market has reacted positively to these changes with the Naira gaining a whooping 21.8% in March 2024, the highest in five years.
• According to Nairametrics daily FX watch, the Naira has incessantly strengthened against the Dollar, settling around N1255/$ based of the latest market report.
• Meanwhile, there are some who believe the bullish run of the Naira may not be sustainable without increase in supply in the FX market in the long-run.