Why forex pressure will continue in Nigeria, by Salami

Foreign exchange pressure will continue in the second half of this year in Nigeria owing to limited inflows from both crude and non-oil sources, rising imports and a backlog of foreign currency demand, an economic expert has said.

The Chairman of Presidential Economic Advisory Council, Dr Doyin Salami, said this in a presentation, titled ‘The state of the economy’, a copy of which was obtained by Markets Reporters.

He noted that the forex market continued to witness supply shortage to meet its demand.

“Consequently, the gap between the various markets keeps expanding. From N92 in June to N99 in July as CBN stop sales of forex to BDC operators As of July 2021, interbank and parallel rates have depreciated by 6.27 percent and 6.67 percent year to date,” he said.

Salami said in the face of a liquidity squeeze in the country’s financial system, the monetary authority would continue to focus on attracting foreign investment inflows into the country.

“The Central Bank of Nigeria will maintain its forex rationing and forex market interventions. This could exert pressure on exchange rate,” he said.

He said the uptick in global oil prices might improve the government’s revenue and reduce fiscal deficit.

He added that increased exploration of marginal oilfields and relaxed OPEC quotas would increase the country’s oil production and expected oil revenue in 2021.

According to Salami, the Petroleum Industry Act PIA will have long-term effect on the economy.

He said, “The government may adopt unconventional approaches to budget deficit financing. Some of these include sales of government assets, privatisation of some state-owned enterprises like Transmission Company of Nigeria.

“Continuous payment of subsidy on refined petroleum products would narrow FAAC allocations and widen the country’s budget deficit. If this continues, the action could push Nigeria into a ‘debt overhang’ by the end of 2021.”

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