How Nigeria can reduce foreign exchange pressure

The Minister of Finance and Coordinating Minister of the Economy, Wale Edun, on Tuesday said Nigeria can reduce foreign exchange pressure by boosting supply through oil production.

Mr Edun made this known Tuesday while taking questions from journalists at a G-24 press briefing held at the ongoing World Bank/IMF summit in Washington D.C.

The briefing was held after a meeting of the governors and ministers of the G-24.

The G-24, or Intergovernmental Group of Twenty-Four, is an intergovernmental trade bloc that coordinates the positions of developing countries on international monetary and development issues.

The briefing also had in attendance the Director of G-24 Secretariat, Iyabo Masha; Ralph Recto, the secretary of finance at the Philippines; and Candelaria Moroni, undersecretary for International Coordination and Management of the Secretariat of International Economic and Financial Affairs at the Ministry of Economy, Argentina.

Mr Edun spoke in response to concerns that the Federation Account Allocation Committee (FAAC) disbursement results in significant pressures in the FX market.

According to the minister, inadequate supply has been the major problem with Nigeria’s foreign exchange market.

“The key about the foreign exchange market really is supply and as you know we are an oil-producing country, we just need to get our oil production up and that will deal with that issue of foreign exchange supply and pressure on foreign exchange anytime there are large flows,” the minister said.

In February, PREMIUM TIMES reported that there was intense apprehension at the Central Bank of Nigeria (CBN) that the Naira may weaken further as the Federation Account Allocation Committee (FAAC) disbursed allocations from the revenues generated into the federations’ accounts among the federal, state and local governments.

Sources within the central bank Thursday told PREMIUM TIMES that there were concerns that funds from FAAC were often illegally converted to dollars by some state governors at the unofficial market, with a ripple effect on the value of the local currency.

The CBN had at the time introduced all sorts of strategies to address the free fall of the naira amid supply constraints in the official market.

Last month, the governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, expressed worries over the monthly disbursement of funds by the Federation Account Allocation Committee (FAAC) to the tiers of government, lamenting the allocation is impacting exchange rate stability.

According to Mr Cardoso, the central bank had observed that the correlation between the FAAC allocation and liquidity in the banking system were causing demand pressure in the exchange rate market.

On Tuesday, Mr Edun explained that as an oil-producing nation, Nigeria could fix its foreign exchange crisis and reduce pressure in the market by significantly increasing oil production output.

Earlier in the week, President Bola Tinubu launched the ‘1MMBOPD’ Initiative meant to raise production by 1 million barrels per day, by harnessing dormant oil assets and optimising existing ones.