Borrowing Dollars To Defend Naira Will Not Solve Forex Crisis- Prof Uwaleke Calls For A ‘Buy Nigerian Law’

Professor of Finance and Capital Markets Studies, Uche Uwaleke, who is one of the leading expert on the Nigerian economy has expressed worry about the approach adopted by the Federal Government to solve Nigeria’s foreign exchange crisis.

Uwaleke said the supply-side approach which involves borrowing in dollars to defend the naira from crashing further is not a holistic approach to the country’s forex crisis.

The Professor who is also the President of the Association of Capital Market Academics of Nigeria in response to solutions to the depreciation of the naira told THE WHISTLER that the supply-side approach adopted by the Central Bank of Nigeria will not have a significant effect on the naira so long as Nigerians do not consume made-in-Nigeria products.

Uwaleke said, “It goes without saying that export-based diversification remains the only sustainable solution to the present forex crisis.

“The current strategy of the government appears to focus on the supply side involving borrowing dollars to improve liquidity in the near term. But it may not record any significant success except the unbridled demand for forex is dealt with.

“To curb the demand pressure, I suggest the government should compel a change in consumption behaviour by enacting a ‘Buy Nigeria law’ akin to the ‘Buy America Act’ of 1933 and recently the ‘Build America, Buy America Act’ of 2021.”

In May 2018, CBN and People Bank of China signed a currency swap deal valued at renminbi (RMB) 16 billion (about $2.5 billion).

The currency swap deal was signed by Godwin Emefiele, the former CBN governor. The swap took effect in July 2018 and expired in 2021 and was renewed by the CBN.

According to a report which quoted the apex bank, since its renewal, CNY9.00 billion had been drawn, CNY6.00 billion utilized and CNY3.00 billion outstanding.

“Out of the CNY6.00 billion utilized, the sum of CNY5.10 billion had been repaid, while the sum of CNY2.10 billion had not been utilized, leaving the sum of CNY900.00 million yet to be repaid. The next renewal is expected to take place in 2024,” CBN said.

Uwaleke said, “Nigeria’s import data support revisiting and scaling up the CBN’s currency swap deal with the Peoples Bank of China.

“Given that the bulk of Nigeria’s imports are from China, it stands to reason, therefore, to explore ways of bypassing the dollars and settling these transactions in the Yuan.

“This was the idea behind the currency swap with China which was largely inadequate in size. In order to increase the stock of Yuan in our external reserves, Nigeria can issue panda bonds, which are bonds denominated in the Chinese Yuan and are considered cheaper than Eurobonds.”