THE Central Bank of Nigeria (CBN) says personal travel allowances (PTA) accounted for $58.7 billion between 2010 and 2020, piling huge pressure on the foreign exchange (forex) market.
This was disclosed by CBN Governor, Mr Olayemi Cardoso, during a sectoral debate organised by the House of Representatives in Abuja on Tuesday, February 6, 2024.
Mr Cardoso noted that between January and September 2019, the CBN disbursed $9.01 billion to Nigerians for personal foreign travels.
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He said such travels, alongside increased quest for foreign education, medical tourism and imports were raising demand for dollars and other currencies, piling pressure on the forex market.
According to Mr Cardoso, the CBN’s publicly available Balance of Payments Statistics showed that foreign education expenditure between 2010 and 2020 stood at $28.65 billion, which was significant.
He revealed that Nigerians spent $11.01 billion on medical treatment abroad within the same period, stressing that this was one of the major items pressuring the forex market.
“Consequently, over the past decade, foreign exchange demand for education and healthcare has totalled nearly US$40 billion,” Mr Cardoso said.
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“Notably, this amount surpasses the total current foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger Naira today,” he added.
Mr Cardoso further said that Nigeria’s annual imports, which required dollars for payment, amounted to $16.65 billion in 1980 but had
surged to $67.05 billion in 2014.
“Similarly, food imports escalated from US$2.63 billion in 1980 to US$14.84 billion in 2019,” he said.
Mr Cardodo noted that over 75 percent of the vehicles used in Nigeria were domestically produced by companies like Volkswagen in Lagos, Peugeot in Kaduna, and others by 1980, but the situation had changed for the worse.
“Presently, over 99 percent of the cars driven are imported, necessitating dollar payments. Similarly, in 1980, the majority of the clothing worn was sourced from Nigerian textile mills in Funtua, Asaba, Kano, Lagos, and various other towns and cities. Today, nearly all the clothing worn is made from imported fabrics,” he stated.
He said given the substantial demand for education, healthcare,
professional services, personal travel, and similar needs, the forex market was bound to face ongoing pressure.
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On the supply side of the exchange rate, Mr Cardoso said Nigeria must earn dollars through exports – whether oil or non-oil – or by attracting foreign investments.
He stressed that a robust economic foundation was essential to producing goods and services that the global market would be willing to pay for in US dollars.
“When such supply surpasses demand, the exchange rate appreciates, causing the price of the dollar to fall. Unfortunately, in Nigeria, the contrary has taken place.”
He said over the past 12 years, oil exports, constituting over
90 percent of our foreign exchange earnings, had declined from
$93.89 billion in 2011 to $31.4 billion in 2020, stressing that this had put more pressure on the forex market.
“From the aforementioned points, we can infer that the genuine
issue impacting the exchange rate is the simultaneous decrease in the
supply of, and increase in the demand for, US Dollars.
“It also seems that the task of stabilizing the exchange rate, while an official mandate of the CBN, would necessitate efforts beyond the Bank itself and indeed to an attitudinal change of all our citizens,” he submitted.
CBN’s efforts
Mr Cardoso said he and his team were committed to refocusing the CBN by giving primacy to price stability, while building confidence in the Nigerian economy through the maintenance of stability in consumer prices and the forex market.
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He noted that he and his team were aware of the twin challenges of inflation and exchange rate depreciation, stressing, however, that they were not insurmountable.
- “Monetary policy actions are sometimes inhibited by transmission
lags. Nonetheless, it is expected that the policy measures implemented
by the Bank will permeate the economy in the short- to medium-term,” he assured. - “Inflation pressures may persist, albeit temporarily, but are
expected to moderate significantly by Q4 2024,” stressing that exchange rate pressures were expected to reduce, with the smooth functioning of the forex market.
He pointed out that to address exchange rate volatility, a comprehensive strategy had been initiated to enhance liquidity in the FX markets, including unification of forex market segments, clearing of outstanding forex obligations, introduction of new operational mechanisms for bureau de change operators (BDCs), among others.
“As I have mentioned in previous engagements, these costs are temporary, and our decisions will address a lot of fundamental
issues bothering Nigeria’s macroeconomic landscape,” he added.
