James Emejo in Abuja
The Central Bank of Nigeria (CBN) monday reeled out measures taken to mitigate foreign exchange risks going forward through continuous accretion to the foreign reserves to a comfortable level that wins confidence of foreign investors.
CBN Deputy Governor, Operations, Mr. Adebayo Adekola Adelabu, also said import substitution and export promotion were part of the apex bankâ€™s cardinal policies targeted at mitigating forex risks in the long run.
Speaking when he appeared before the House of Representatives Joint Committees on Finance, Appropriation, Aids, Loans and Debts Management, chaired by Hon. Babangida Ibrahim (APC, Katsina) on the stakeholdersâ€™ engagement meeting on the 2018 Medium Term Expenditure Framework (MTEF), Adelabu further hinted on the feasibility of a more harmonised exchange rate system.
He further defended the CBN policy on the restriction of the famous 41 items from accessing forex, adding that the policy has yielded positive results.
The CBN deputy governor said: â€œBut there are three areas which we are looking at to mitigate exchange rate risks going forward.
â€œOne is the import substitution which the customs said theyâ€™ve seen drop in revenue on imported items.
â€œThatâ€™s why we have the 41 items under restriction. We want to encourage local manufactures and inventors to produce these things locally to reduce our expenditure on foreign exchange on production by another country where they create their own employment.
â€œIf we do it here, we are going to create employment and peopleâ€™s income will increase, tax revenue will increase and poverty will reduce.
â€œAnd we have seen impact of this going by available statistics to the CBN.â€
Also, yesterday, the federal government disclosed that it plans to privatise some national assets to fund the 2018 budget.
He noted that the CBN could actually afford to make a small shift in the current exchange rate to achieve rate harmonisation.
The Director General, Budget Office of the Federation, Mr. Ben Akabueze, told the joint committees that some National Independent Power Projects (NIPP) including assets in mines and steels sectors and non-core assets, as well as houses, national parks, the Tafawa Balewa Square (TBS) and the National Arts Theatre will all be put on the sale block in an attempt to raise revenue to fund the budget.
He said the target of GDP growth rate of 3.5 percent In the MTEF was not only achievable but desirable.
Akabueze said the economy needed to grow at 6 percent before people start to feel the impact of growth.
He added though that it would require hard work from both the executive and legislature to achieve the desired results.
The director noted that the country is not generating the kind of revenue needed to help debt service reduce as expected.
Nevertheless, the CBN deputy governor said the bank is working towards a comfortable level in the reserves to â€œmake foreign investors believe that if they bring any amount of dollar to the economy either by way of foreign portfolio investment or foreign direct investment; any time they are ready to tale their money back, they are sure we can afford the money- and weâ€™ve seen the growth in our reserves and once we are at comfortable level, I believe that volatility and vulnerability that we are experiencing recently will disappear and we will see a lot of appreciation.â€
Asked whether the CBN could afford a shift towards a more harmonised regime, he said: â€œWe can actually afford it and weâ€™ve been reflecting this in the series of activities by the CBN.
â€œThe official rate of N305 has been the guidance rate and majority of the allocations done by the CBN to the private sector to address the critical sector needs have been at higher rates because they submit their bids during the auction and weâ€™ve seen, N325 and N330 and all that and these are even forward rate…
â€œSo, if you look at the spot market, which is the market that determines the rates, itâ€™s trading at N360- for those that need the dollar urgently.
If you do a simple calculation, youâ€™ll see that itâ€™s the cost of funds theyâ€™re incurring.
â€œSo, we are actually trying to achieve the harmonisation and the gap in terms of the exchange gain we are making on this is being passed on to the federation account for the three tiers of government to share. And I believe with time, we are going to achieve better rates harmonisation.â€
Also asked to clarify some of CBN intervention programmes particularly as it affects disbursements to state governments as bail out, Adelabu said: â€œBut if you talk of interventions in states bail out, I want to put it on record that CBN does not disburse funds to bail out states.
â€œThe bail out has been by the federal government. The other one which is special budget support has been long term loans granted to eight states by commercial banks which is guaranteed by the federal government.
â€œBy the 2007 Act of the CBN, we are not allowed to loan money to sub national governments- so we donâ€™t give out money to states.â€
Also, Minister of State for Budget and National Planning, Mrs. Zainab Ahmad Expressed concerned over the revenue performance of Government Owned Enterprises (GOEs) which was put at only about 20 percent in 2017.
She said the enterprises should be made to function properly so they could yield sufficient revenue for government.
But Minister of Finance, Mrs. Kemi Adeosun, said going forward, chief executives of GOEs would be held to account for the performances of the organisation as well as sanctioned where necessary.
Represented by the Permanent Secretary, Federal Ministry of Finance, Mr Mahmoud Isa-Dutse, Adeosun who stressed the need to broaden the tax net, said taxes on alcohol, lottery activities and tobacco would probably take effect by early 2018.