FG Blames Speculators for Forex Crisis, Insists N305/$ is Realistic

• Explains adjustment to MTEF, FSP 
• IMF forecasts 0.8% Growth for Nigeria in 2017

By Obinna Chima in Lagos and Damilola Oyedele in Abuja

The Minister of Finance, Mrs.  Kemi Adeosun, has said N305 is a realistic exchange rate of the naira to the US dollar, blaming the hoarding of the United States currency by Shylock market speculators for the huge disparities in the foreign exchange market rates.

She said the naira was valued between N305 and N315, adding that despite the recession, the national currency should not have crashed above N305.

Adeosun made the presentation when she appeared before the House of Representatives Joint Committees on Finance; Appropriations; and Aids, Loans and Debt Management, to defend the projections contained in the 2017- 2019 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) yesterday.

She was at the meeting in company with the Minister of Budget and National Planning, Senator Udoma Udo Udoma; the Accountant General of the Federation, Mr. Ahmed Idris; and officials of the Central Bank of Nigeria (CBN), the Nigeria National Petroleum Corporation (NNPC) and the Federal Inland Revenue Service (FIRS).

“The factors responsible for the declining fate of the local currency are irrational and emotional,” Adeosun told the committee, explaining that the difference between the official and the parallel market rates could not be justified.

“In reality, the Naira should not be affected more than the N305,” she argued, explaining that this was so because the CBN had put in place measures to stimulate more supply of dollars to deal with its shortage in the market.

She however said the parallel market would soon collapse because it was not driven by any fundamental and was misleading the market.

Earlier, Udoma told the committee that MTEF was altered to conform with contemporary realities as the initial projections had become unrealistic.

He cited some of the alterations to include the adjustment of the inflation rate to 15 percent from the initial 12. 93 percent, and the adjustment of the exchange rate to N305 from N290 to the dollar.

The revenue target from Value Added Tax was reduced to N1.8 trillion from N2.1 trillion, while corporate tax projection was reduced to N1.7 trillion from N1.9 trillion.

He also said revenue projection from the Nigerian Customs Service (NCS) was reduced from to N714 billion from an initial projection of N1.2 trillion.

“All our macro-economic projections have to be adjusted due to developments after the budget was finalized in August 2016,” he said. Explaining: “The economy was not as robust as expected; crude oil production was disrupted, and production came down to about half of the amount expected.”

Udoma, however, assured the lawmakers that the new MTEF was prepared after extensive consultations and remained in conformity with the Fiscal Responsibility Act.

The minister, who led the team also cited some positive adjustments to include an initial projection of budget deficit of N4.438 trillion to N2.356 trillion; an increase in capital allocation to 31 percent from the initial 28 percent for the N7.3 trillion 2017 budget.

These, he said would be funded through outstanding royalties, while $1.5 billion is projected through Early Step in Rights, $926 million from oil production licensing, and $100 million from marginal oil fields.

IMF Foresees 0.8% Growth for Nigeria in 2017

The International Monetary Fund (IMF) has, however, predicted a slim rise in Nigeria’s Gross Domestic Product (GDP) to 0.8 per cent in 2017.

The IMF, which stated this in its World Economic Outlook titled: “A Shifting Global Economic Landscape,” released yesterday, was more bullish in its 2018 economic growth expectation from Nigeria as it predicted a 2.3 per GDP growth for the country.

These projections came less than a week after the World Bank predicted a one per cent GDP growth for Nigeria.

Although Nigeria’s fourth quarter 2016 GDP estimate is expected to be released next month, the country’s third quarter 2016 GDP had contracted by 2.26 per cent from -2.06 per cent in the second quarter of this year, and -0.36 per cent in the first quarter.

Continuing, the IMF in its outlook, pointed out that accumulation of recent data suggested that the global economic landscape started to shift in the second half of 2016.

Furthermore, it explained that developments since last summer indicated somewhat greater growth momentum coming into the new year in a number of important economies.

“Our earlier projection that world growth will pick up from last year’s lacklustre pace in 2017 and 2018, therefore, looks increasingly likely to be realised. At the same time, we see a wider dispersion of risks to this short-term forecast, with those risks still tilted to the downside. Uncertainty has risen.” It said.

The world financial body added: “Our central projection is that global growth will rise to a rate of 3.4 percent in 2017 and 3.6 percent in 2018, from a 2016 rate of 3.1 percent. Much of the better growth performance we expect this year and next stems from improvements in some large emerging market and low income economies that in 2016 were exceptionally stressed. That being said, compared to our view in October, we now think that more of the lift will come from better prospects in the United States, China, Europe, and Japan.

“A faster pace of expansion would be especially welcome this year: global growth in 2016 was the weakest since 2008–09, owing to a challenging first half marked initially by turmoil in world financial markets. General improvement got under way around mid-year.

“For example, broad indicators of manufacturing activity in emerging and advanced economies have been in expansionary territory and rising since early summer. In many countries, previous downward pressures on headline inflation weakened, in part owing to firming commodity prices,” the Economic Counsellor and Director of Research at IMF, Maurice Obstfeld explained.

The fund noted that significant repricing of assets followed the U.S. presidential election, adding that its most notable elements were a sharp increase in U.S. longer-term interest rates, equity market appreciation and higher long-term inflation expectations in advanced economies, and sharp movements in opposite directions of the dollar—up—and the yen—down. At the same time, emerging market equity markets broadly retreated as currencies weakened.

It, nonetheless predicted that some emerging and especially low-income commodity exporters could benefit from higher export prices, but importers would then lose. Also, the IMF’s outlook stated that among emerging economies, China remained a major driver of world economic developments.

“At the global level, other vulnerabilities include higher popular antipathy toward trade, immigration, and multilateral engagement in the United States and Europe; widespread high levels of public and private debt; ongoing climate change—which especially affects low-income countries; and, in a number of advanced countries, continuing slow growth and deflationary pressures.

“In Europe, Britain’s terms of exit from the European Union remain unsettled and the upcoming national electoral calendar is crowded, with possibilities of adverse economic repercussions, in the short and longer terms. We continue to recommend a three-pronged policy approach relying on fiscal and structural policies alongside monetary policy, but one that is tailored to country circumstances.

“Structural reform remains a priority everywhere in view of continuing tepid productivity growth, although in many cases, appropriate fiscal support can raise the effectiveness of reforms without worsening governments’ fiscal positions.

“Financial resilience is another universal priority and requires stronger financial regulatory frameworks, better focused on key problem areas. Countries can do much on their own to improve financial oversight and institutions, but not everything, and continuing multilateral financial regulatory cooperation is vital.”