World Bank Disagrees With CBN On Multiple Exchange Rates, Others

The World Bank has said it disagrees with the Central Bank of Nigeria (CBN) on how it is going about to achieve its price stabilisation objective.

The Country Director for Nigeria, World Bank, Shubham Chaudhuri, said this in an exclusive interview with our correspondent.

He said although the World Bank aligned with the CBN on the need to achieve price stability as one of its core mandates, it differed on the method and choice of policies in achieving this.

He said, “Nigeria, like many other countries, has gone through a very tough time, especially last year, with the price of oil falling, which had an immediate effect in terms of foreign currency inflows into the country because sales of crude oil are one of the biggest sources of foreign currency inflows into Nigeria.

“So, we recognise that in the middle of the economic crisis, Nigeria was under tremendous pressure, alongside the naira. One of the core mandates of CBN is price stabilisation. However, we differ with the CBN on how best this aim can be achieved.”

Chaudhuri said the naira should be allowed to respond to real pressures, instead of the CBN trying to bottle up the pressures.

He said, “In the FX market, the way it works is to let the naira respond to very real pressures but in a way that let the steam off rather than bottle it. Because if you bottle it, the pressure does not get released, and at some points, there has to be a massive adjustment.

“Over the last year, the pressures have been building up. Finding ways to release some of the pressures by letting the naira adjust more gradually would help and keep the naira, in a long run, from depreciating by a very large amount.”

Chaudhuri described the structure of the Nigerian FX market as complicated.

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He said, “What’s really important is the transparency, credibility and predictability on which ways the currency might move.

“To that extent, having the CBN’s intervention in the foreign currency market and the way it regulates the market be more predictable so that all stakeholders – whether people who are interested in bringing foreign currency into Nigeria or people looking to access foreign currency because they have some foreign currency obligation – get a sense of clarity and predictability is crucial.”

He said having a more predictable, clear mechanism for the FX market would help in restoring and enhancing the confidence in the market.

The World Bank director said, “We haven’t had foreign portfolio investors come back to Nigeria since the COVID crisis, not at the levels that we saw earlier. Some of that has to do with what is happening to interest rates locally but some of that also has to do with their confidence – that if they do come into the market, they will be able to get the FX out again, repatriate their profits.

“What’s more concerning is foreign direct investors. FDI has not recovered. That also has to do partly with the level of confidence in terms of the ability to predictably access foreign exchange. While we understand and see what the CBN’s overall objectives are, we do differ on how those objectives might be obtained.”