How Federal Government can stabilize the Naira – Teriba

The Chief Executive of Economic Associates Limited, Dr Ayo Teriba, has said that the only way the Federal Government (FG) can stabilize the rate of the Nigerian currency at the foreign exchange market is by ensuring that the supply side is well met.

The renowned Economist who stated this in a seminar held recently in Lagos said, “Wherever governments try to cover up supply shortfalls by pegging the official exchange rate at a value that does not equate supply with demand, gaps, spreads, or premiums emerge between rates in official and parallel market segments.

“These premiums are very informative when the market is out of equilibrium as they largely reflect the size of the supply shortfalls or the distance of pegged exchange rate from market realities. The trend of the premium reveal useful news which no market participant can afford to ignore. Policies should be guided by them, rather than ignore, or suppress that news. Thus, his position that increasing foreign exchange supply is the only enduring way to narrow or close premiums, adding that FG should learn that it is just as futile to try to curtail demand for forex as it is to try to control the price of forex. Supply of forex is the only variable that we should be trying to boost”.

He maintained that the “sooner we refocus our efforts on how to substantially boost foreign exchange supply in Nigeria, through balance-sheet-related foreign exchange inflows that are fueled by the unprecedented global liquidity glut, rather than transactions-related foreign exchange inflows that are adversely affected by weakening global commodity prices, the better.

Teriba hinted that “most other oil exporting developing countries have shifted from relying on oil exports for foreign exchange supply towards asset based securities that is helping them to attract bigger net foreign exchange inflows than oil could ever have brought even in the best of times.

“Fighting over exchange rate premium distracts us from concentrating on how to raise large sums from global asset-based securities like progressive developing countries are doing”.

He disclosed that opportunities for issuing asset-based securities that will connect global liquidity into local assets internationally are available and that other countries are seizing heavily on these opportunities, but that Nigeria shun such opportunities by focusing on exchange rate and demand-side participants rather than how to boost supply.

On the way forward, the Economist stated that FG should create special purpose vehicles for packaging infrastructure assets for big-ticket interest-free financing through asset-linked nonconvertible or convertible bonds.

He stressed that the “gains of India and a few other countries who have learnt to attract record levels of foreign capital inflows by issuing asset-based bonds targeted at their diaspora, the breakthroughs of China, Brazil, India, and a few other developing countries in leveraging on local assets to receive record levels of global equity inflows through cross-border mergers and acquisitions and greenfield deals, and the successes of Malaysia, Saudi Arabia, and about six other oil producing countries in issuing interest-free commercial bonds to replace interest paying ones, all show that Nigeria’s options…. are endless”.