Recent developments in the foreign exchange market have sent jitters down the spines of the architects of the 2023 Appropriation Bill.
If Nigeria was a country where budgets are meant to be implemented, the federal government would have withdrawn the bill for massive reviews. The economic projections in the bill are collapsing like a pack of cards.
Last week the Bank of America (BoA) warned of the looming catastrophic depreciation of the naira that would derail the 2023 budget.
BoA warned that the naira was grossly over-valued at the official window of the Central Bank of Nigeria (CBN) and that exchange rate of the Nigerian currency would plummet precipitously in 2023.
It argued that its conclusion on the exchange rate was informed by developments in the official and parallel markets along with the bank’s “fair value analysis”.
The bank puts the realistic official exchange rate of the naira at N520 to the dollar. The naira closed last week at abysmal rates of N740 and N440 to the dollar at the parallel market and official window respectively.
About 70 per cent of the transactions in the economy are funded by forex from the parallel market. That partially informs the BoA conclusion that the naira is grossly over-valued at the official window.
Everything went wrong in the foreign exchange market last week. The naira’s calamitous showing at the official window is N30 below the 2022 budget exchange rate of N410. Ironically, the 2023 Appropriation Bill was predicated upon an exchange rate of N435 to the dollar.
About three months to the end of the year, the exchange rate of the naira has dropped below the projections of architects of the 2023 budget. That is an irreversible setback for the budget.
BoA predicates its dooms day naira depreciation projection in 2023 on government’s plan to fund the budget’s massive deficit with less external loans.
It concludes that the decision would worsen the supply of forex in the market and mount tremendous pressures on the exchange rate of the naira.
Architects of the 2023 Appropriation Bill had access to all the factors listed by BoA as they set the unattainable rate of N435 as budget exchange rate. What could be deciphered from the indefensible optimism in the budget projections is that most of the economic indices were presented with despicable deceit as they are unattainable.
The exchange rate of the budget is as unattainable as the inflation rate. Figures released last week by the National Bureau of Statistics (NBS) show inflation surging along at 20.7 per cent. The inflation rate for the 2023 Appropriation Bill stands deceptively at 17.1 per cent.
With the naira certainly bound to plummet precipitously due to acute shortage of forex, inflation in Nigeria’s import dependent economy may surge perilously close to 30 per cent in 2023.
The naira’s catastrophic depreciation is the consequence of overwhelming supply deficit, concocted speculative biddings, gross mismanagement of the exchange rate by CBN, government’s hypocritical attitude to the endemic oil theft in the fields and uninhibited corruption which breeds crass looting of the little proceeds from crude oil exports.
Nigeria is the only crude oil exporter that is not benefitting from the bumper harvest in crude oil exports engendered by Russia’s invasion of Ukraine.
Thieves export more oil than the federal government. The consequence is the precipitous decline in government’s meager revenue. Government has for years paid lip service to brazen theft of the nation’s crude oil.
Last month a four-kilometre pipeline diverting crude oil from government terminal in the Escravos was discovered for the first time after the thieves had operated it for nine years.
The Nigerian National Petroleum Company Limited (NNPCL) belatedly confessed that 250, 000 barrels of crude oil was stolen daily from the illegal diversion.
Everyone is worried that thieves could build four kilometres of pipeline with heavy equipment without anyone in the armed forces or police raising a finger in protest.
Everyone believes Government Ekpemopolo (Tompolo), the new protector of Nigeria’s pipelines, when he asserted that the army and the navy collaborated with crude oil thieves.
There is no way the army, navy and the police would not know about the construction and operation of the illegal pipeline discovered last month.
The puzzle about government hypocrisy in crude oil theft still lingers even as there appears to be concerted effort to turn the heat on the thieves.
About a month after the arrest and destruction of a huge marine tanker stealing crude oil in the Escravos, the federal government has maintained a deafening silence over the main brains behind the huge theft.
The seven crew members of the ship now in detention are just messengers. Someone sent them to haul what he stole. Crude oil theft will persist as long as government is reluctant to name and shame the big names behind the heinous crime.
The catastrophic performance of the naira in the forex market is again engendered by CBN’s mismanagement of the exchange rates.
CBN defiantly operates about four exchange rates despite repeated warnings from the World Bank and the International Monetary Fund (IMF) on the dangers of multiple exchange rates.
The margin between the official and parallel market rates now stand menacingly at N300 per dollar. It is a huge incentive for round-tripping of the lean forex from the official window to the blooming parallel market.
With the CBN practically the only source of forex supply in the economy, it is obvious that a chunk of forex for the massive transactions in the parallel market emanates from the official window.
It probably explains why the naira is persistently depreciating. Merger of the exchange rates would rob beneficiaries of round-tripping of the bumper harvest from the heinous crime.
Right now, anyone who smuggles $1 million from the official window to the parallel market, smiles home with N300 million as profit. Only a single exchange rate can halt the profiteering on forex and stem the surging inflation.
