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Despite efforts by
the Central Bank of Nigeria (CBN) to curtail demand for foreign
exchange, the country supplied over $12.6 billion (N1.89 trillion) to
meet her burgeoning importation appetite and defend the value of the
naira in the second half of the year. This is compared to $11.16
billion (about N1.7 trillion) supplied in the first half of the year.

This figure does
not include foreign exchange inflow from autonomous sources which
amounted to about $67.17 billion as at October. The highest foreign
exchange demand occurred in September when a total of $3.2 billion was
offered by the CBN. The huge demand has taken its toll on the country’s
foreign reserves. The figure closed the year at $32.19 billion, its
lowest in over four years. The figure stood at $62.24 billion in
mid-May 2008.

Speculative demand

At the November 23
Monetary Policy Committee (MPC) meeting, the last one for the year, the
CBN governor, Lamido Sanusi, raised concerns over speculative demand
for foreign exchange which led to an increase in reserve utilisation to
defend the naira. The MPC communiqué raised concerns about the elevated
inflation levels, rising government expenditure and borrowings with the
possible crowding out effects on the private sector and demand pressure
in the foreign exchange market, leading to reduction in external
reserves.

“The view of the
Committee is that the solution requires both fiscal and monetary
measures, and reiterated the need to eliminate unnecessary subsidies
that add to government expenditure and debt,” the communiqué stated.
The Committee urged greater fiscal responsibility and commitment to
reforms that will enhance the effectiveness of monetary policy. It also
held that, in view of the low price elasticity of demand for imported
necessities, depreciation of the currency would not in itself address
the structural problem of import-dependence.

Legitimate concerns

Olusegun Aganga,
the finance minister, in a telephone interview yesterday said all the
legitimate concerns on issues affecting the value of the naira, foreign
reserves management and the growth of the economy was being looked at.
Mr Aganga said the setting up of the sovereign wealth fund was a step
in the right direction. He said the provision of N500 billion longer
term loans at single digit has been made available to enable companies
refinance their loans while about five textile companies have resumed
production as a result of lifeline from the N100 billion textile
revival fund.

Mr Aganga said
government was addressing the unemployment scourge adding that
Nigeria’s economy has not done badly compared to other developing
economies in view of the global economic crisis which has affected
world economy.

“Figures do not lie, an economy where GDP (gross domestic product)
has grown for the last seven years. As at third quarter 2010, GDP was
7.7 per cent, making it one of the top performers in the world. Oil GDP
growth of about 5.5 per cent and non oil GDP growth of 8.7 per cent and
annual year on year revenue of 42 to 48 per cent.”