The Center for the Promotion of Private Enterprise, an economic think tank, has advised the Central Bank of Nigeria to review its ban on some of the more than 40 items that the regulator has barred importers from accessing foreign currency for import them into the country.
Economists at the center also said there was a need for the CBN to revise its foreign exchange policy in 2022 with a view to improving dollar liquidity in order to save the ailing naira and help industries grow.
The group revealed it in its review of the economic and business environment for 2021 and its agenda for 2022, a copy of which was obtained by our correspondent on Sunday.
According to the CPPE, the CBN must involve stakeholders, as its current exchange rate policy regime negatively affects investors, manufacturers and other stakeholders.
The CPPE said: âIn an effort to reduce the pressure on foreign exchange reserves, the CBN had excluded more than 40 items from foreign currency access in the official window.
âSome of the products on this list are intermediate products for certain manufacturing companies that have had a negative impact on certain manufacturers. It would be desirable for the CBN to have a strong engagement with stakeholders to review this list in the new year. ”
According to the organization, the CBN should adopt a flexible exchange rate policy regime and allow pricing mechanisms to reflect demand and supply fundamentals in the foreign exchange market.
He said, âOur proposal is that we should adopt a flexible exchange rate policy regime. We would like to point out that this is not a devaluation proposal.
âRather, it is a pricing mechanism that reflects the fundamentals of demand and supply in the forex market. It is a sustainable, predictable and transparent model. It is a political regime that would reduce uncertainty and inspire investor confidence.
âIt’s a political framework that would minimize discretion and arbitrage in the currency allocation mechanism. A flexible exchange rate regime is a policy choice adopted to cope with changing demand and supply conditions in the foreign exchange market.
According to the center, adopting a market rate would deepen the autonomous foreign exchange market by liberalizing inflows from export earnings, diaspora remittances, multinational corporations, donor agencies, diplomatic missions and others.
He added that a flexible exchange rate would improve liquidity in the foreign exchange market, increase investor confidence and ensure a more transparent model for foreign exchange allocation.
In addition, the CPPE said that the liquidity reserve requirements imposed on Nigerian banks by the CBN are one of the highest in the world, adding that it is a major obstacle to financial intermediation by the CBN. banks.
According to experts, some banks have a CRR of 50 percent and above against the official CRR of 27.5 percent.
He said: âYet financial intermediation is supposed to be the main function and the essence of the banking system. The high CRR made it difficult for banks to play their primary role of financial intermediation. Their profitability is also negatively impacted due to limited leeway for credit creation activities.
âIndeed, the financial ways and means of the apex bank pose a greater liquidity risk to the economy than bank deposits. We are therefore seeking a reduction in the CRR so that banks are better placed to play their primary role of financial intermediation in the economy.
The CPPE also said that infrastructure challenges, growing insecurity, climate change, low productivity in agriculture, monetization of the budget deficit and the depreciation of the naira are fueling inflation in the country.
He said headline inflation was 16.47% in January and peaked at 18.17% in March, before falling back to 15.40% in November.
The organization said: âHeadline inflation has increased month over month from January to date, albeit at a reduced rate.
âMeanwhile, food inflation has consistently been higher than headline and core inflation for most of the year. Inflationary pressure remains a major source of concern for both businesses and households as it remains high.
According to the organization, the implications of these include increased poverty, increased risk of malnutrition, increased social tensions and crime.
He added that the companies had to contend with low purchasing power, low sales and low profit margin, low capacity utilization, high production and operating costs and high risk of increased mortality of workers. companies.
The CPPE said that to fight inflation, the country needs to increase productivity to boost output growth, reduce the depreciation of the exchange rate of the naira and improve currency flows.
The CPPE added that the nation must âminimize the monetization of the budget deficit. The financing of the deficit by the CBN should be strictly limited to the statutory threshold defined in the law on the CBN.
âThe government should look for creative ways to tackle insecurity in order to pave the way for farmers to return to their farms. Cost of the logistics of the address. Talk about the ease of clearing goods at the port. Respond to concerns related to climate change. Review our commercial policy to lower the cost of certain intermediate products for manufacturers.
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