The removal of foreign exchange restrictions hitherto placed on importing 43 items by the Central Bank of Nigeria (CBN) has been described as a market-friendly step towards unifying the exchange rates, manufacturers have said.
The Organised Private Sector (OPS) has expressed optimism that the lifting of foreign exchange restrictions hitherto placed on importing 43 items is a market-friendly step towards unifying the exchange rates and is expected to curtail inflationary pressures in the short term.
The CBN on October 11 issued a communique restating its commitment to enhancing foreign exchange (FX) liquidity, addressing the recent FX challenges, and shared its six-point plan, one of which involves lifting the FX ban placed on 43 items.
Additionally, the CBN has promised to make regular interventions in the market when needed and restated its pledge to clear the current FX backlog (est. $6.8 billion – $10.0 billion).
Recall that the apex bank under the leadership of Mr. Godwin Emefiele had in 2015 blacklisted 43 items from accessing FX at the official window as part of FX management and import substitution strategies.
Stakeholders stated that “however, the policy failed to deliver on its objective due to misalignment with market forces and the lack of synergy between the fiscal and monetary authorities leading to persistent decline in forex reserves and weakening naira.
“We laud the reversal of the FX restriction policy, as it holds the potential to reduce demand pressure in the parallel market and curb speculative activity which is fuelling the sizable divergence between the official and parallel market rate.”
President / chairman of Council, Lagos Chamber of Commerce and Industry (LCCI), Dr. Michael Olawale-Cole stated that, “LCCI wishes to commend the Central Bank of Nigeria (CBN) on the removal of the restrictions on 43 items previously banned and the decision to raise dollar supply to meet the demand pressure.
“It is also noteworthy the commitment of CBN to offset the FX backlog as part of the measures to address the current FX challenge plaguing the market.”
According to Olawale-Cole, this policy change is expected to reduce the demand pressure on the parallel market and ensure there is a gradual convergence in FX market rates.
“The LCCI particularly appreciates this stand to promote orderliness and professional conduct by all market participants to ensure market forces determine exchange rates on a willing buyer- willing seller principle.”
He emphasised that “over the years, the Chamber has consistently expressed its concerns about the restrictions in the FX market and its consequences on the divergence of the FX rates.
In our opinion, this policy is a market-friendly step towards unifying the exchange rates and is expected to curtail inflationary pressures in the short term.”
The chamber recommended that the CBN should adopt creative financing options for clearing the short to medium-term backlog and establish a mechanism to address forex unification under the current system, saying, “we believe the authorities must pursue the right monetary policy reforms to improve the investment climate and boost investor confidence. We call on the CBN to ensure transparency and accountability in banks’ foreign exchange dealings at the investors & exporters windows.”
Director, Centre for Promotion of Private Enterprise (CPPE), Dr. Muda Yusuf said that, “we welcome the decision of the CBN to discontinue the forex exclusion policy on the 43 items. It is a move in the right direction. It is part of the policy normalisation process.
“The exclusion of the 43 items was one of the several drivers of distortions in the forex market. The exclusion of the items also contributed to the persistent divergence in rates between the official window and the parallel market.”
He added that the exclusion was also in conflict with extant trade policy as the items were not under import prohibition in the first place, adding that it was an example of lack of policy coordination under the previous administration.
“The new directive will also improve transparency and disclosures in foreign exchange transactions. Meanwhile, the CBN should avoid market suppression tendencies, especially outside the I and E window. All policy impediments to forex inflows should be removed,” he stated.
He further said: “Meanwhile, the fiscal authorities should continually monitor the economic landscape to shape the character of fiscal policy measures to regulate imports in line with comparative advantage principles. We need to worry about the risk of import surge. There is also a need to upscale the use of fiscal policy measures to boost domestic production and productivity.”
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