World Bank has said that Nigeria has its finest moment now to adjust the exchange rate reflective of market dynamics, following surging oil prices, which is the highest in nine years.
In a document titled, ‘Nigeria Development Update (June 2022): The Continuing Urgency of Business Unusual,’ the world Bank told the Central Bank of Nigeria that that timely and consistent monetary policy and exchange rate unification have become critical for Nigeria.
The international lender said it is surprising that despite Nigeria’s apex bank claim of unifying the official exchange rate, the CBN still supplies FX to at least four windows.
“The CBN took steps to unify multiple exchange rates by adopting the IEFX window rate as its official exchange rate in May 2021. However, different windows still exist, and the parallel rate premium continues to climb, reaching 39 percent over the official IEFX rate in March 2022,” it said.
The Bank stressed that clarity on exchange rate policy, and transparency in its management, are all necessary for capital inflows, including foreign direct investment.
The World Bank encouraged the Nigeria’s apex bank to genuinely unify the exchange rate, adding that “the benefits of a more effective exchange rate management, with a view towards a unified and market-reflective exchange rate, are more significant than in previous years.“
According to the World Bank, Nigeria has a great opportunity now to a more flexible exchange rate system, but cautioned that the steps should be gradual and graduated.
“Favorable external conditions (oil prices being the highest in nine years) provide an opportunity to adjust the exchange rate reflective of market dynamics. Allowing further gradual adjustment in the IEFX rate, where the CBN manages the price would help eliminate misalignment and alleviate persistent FX pressures.
The World Bank said it was counterproductive to supply forex via four channels, sometimes at varying rates: namely (i) the I&E window; (ii) the secondary market intervention sales retail window; (iii) the small and medium-sized enterprises (SME) window; and (iv) the window for invisibles.