The expectation expressed by the Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, to the effect that if Nigeria is able to receive even $2 billion monthly Diaspora remittances the exchange rate of the naira will be boosted is apt, albeit speculative. The minister’s permutation is probably borne out of the inability of the nation’s monetary authority, namely, the Central Bank of Nigeria (CBN) to halt the free fall of the naira against major currencies, particularly, the US dollars.
At an interactive session on ‘Improving Remittance Inflows into Nigeria’ in Abuja recently, the minister said: “If it is just $1billion monthly or moving close to $2 billion monthly I’m so certain you all know what will happen to exchange rate in Nigeria. Second I am so certain that after sometime deposit money banks will not have any need to begin to call on the CBN to provide dollars to fund their commercial operation so that is why we are saying that we want to aggressively take on this and see how this will help our economy.”
“Also, that they say they think it will fuel money laundering, I want you to know that even from abroad where these funds are coming that is why we talked about institutions that are tested like Western Union, RAE and Money Gram, who operate also in those countries where they are domiciled are properly licensed and regulated and I know for certain that institutions where or countries where they are domiciled abroad would not allow money laundering practices or remittance of funds in those countries into our country to be associated with money laundering.
“In our part here most of those will be receiving those funds, they come with some form of identity card and I know that when this started in 1996, with some form of identification at that time First bank was able to ensure that the people who are receiving fund are properly identified and can easily be traced talk less of even today where we even have BVN”.
Earlier in his address, Governor of the CBN, Mr. Godwin Emefiele, said the new policy measures announced recently in the country’s remittance programme are designed to boost and facilitate an efficient flow of remittances sent home by Nigerians in the Diaspora. “These changes are as a result of our internal review of the operations of International Money Transfer Operators (IMTO) in the country and the potential impact improved flows could have on our economy.
“Based on this premise, we analyzed data on IMTO inflows into the country over the past year, and through our investigations discovered that some IMTOs, rather than compete on improving transaction volumes and create more efficient ways for Nigerians in the Diaspora to remit funds, resorted to engaging in arbitrage arrangements on the naira-dollar exchange rate, which to a large extent resulted in a significant drop in flows into the country.
It also encouraged the use of unsafe unofficial channels, which also supported diversion of remittance flows meant for Nigeria, thereby undermining our Foreign Exchange management framework,” he said.
However, the CBN governor said a total of $24 billion is expected annually as remittances from citizens in diaspora, following the introduction of Diaspora Foreign Exchange Remittances Policy by the apex bank. He said the target is predicated on the inflows accruable to countries that have similar demographic features with Nigeria, such as Pakistan, which often receives about $2bn monthly from their citizens in diaspora.
There is no doubt that Nigeria’s currency is in the grip of tough external pressure, with internal foreign exchange shortages, and black market rates that have hit N490 to the dollar.
Nigeria’s current foreign exchange pressure is likely to gain momentum in 2021 as the economy and imports recover will trigger a future adjustment of the nation’s currency to N430/$ next year, Bank of Africa analysts Rukayat Yusuf and Andrew MacFarlane said in the global bank’s latest report looking at Nigeria’s foreign exchange unification and shortages.
With the CPI inflation accelerating to 12.8% YoY in July from 11.2% in 2019, reaching the highest level in more than two years on higher food prices from the ongoing closure of land borders, weaker naira and COVID-19 supply disruptions the Bank of America expects the CBN to “remain on hold at 12.5% for the remainder of the year, balancing weak economic activity with FX and inflation.”
Forex turnover rose by 3.4%, as the naira’s exchange rate at the NAFEX window maintained stability against the dollar to close at N394/$1 during intra-day trading on Tuesday, December 15. Also, the naira continued to remain stable against the dollar, closing at N475/$1 at the parallel market on Tuesday, December 15, 2020, as demand pressure reduces.
Given the CBN’s expectation of $24 billion annual remittances from Nigerian citizens in the diaspora, which amounts to $2 billion monthly as envisaged by the finance minister, Nigeria may well be on track in its efforts to boost the naira. This will have the concomitant effect on an improved economy and subsequently freeing the nation from its recurrent recession.