In the next coming weeks (within the next 5 months), the Nigerian government will do: return fuel subsidies or/and go back to dual exchange rate policy. Right now, there is a black swan in the economic permutation in the nation, and it is very significant. Yes, the loans which the central bank did not initially disclose, but which it received, through the collateralization of some national financial assets and securities with US big banks, are big problems.
Simply, those securities/assets which many of us think are with the big banks for the Nigerian people to support the Naira are technically gone since the nation has no capacity to pay back those $billions in the short term. The implication is clear: Moody’s, Fitch and S&P will likely hammer Nigeria’s credit rating, jacking up the cost of future borrowing. That will trigger a vicious circle in the national economic sphere: ‘Mr Shonubi (acting governor of Central Bank of Nigeria), who briefed journalists after the meeting at the State House Abuja, blamed speculators for the current exchange rate, saying the president is “very concerned” about the situation.’
My conclusion is simple: the government will give up on either/both of fuel subsidies removal and Naira floating, until it can deal with the foreign reserve mess. If you are taking positions against the Naira, you may experience a huge shock because it could backfire big time. (Nigerians hope it goes that way).
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My suggestion to the government is to become more pragmatic and forget the liturgical purity of campaign manifestos because every day matters now. Indeed, time for a practical governing reality.
Worried about the rising exchange rate of the naira to the dollar, Nigeria’s President Bola Tinubu, met with the acting governor of the central bank, Folashodun Sonubi.
At the meeting, both men discussed what “could be done to stabilize” the Nigerian currency and how to “improve the liquidity in the market.”
Mr Shonubi, who briefed journalists after the meeting at the State House Abuja, blamed speculators for the current exchange rate, saying the president is “very concerned” about the situation.
“We do not believe that the changes going on in the parallel market are driven by pure economic demand and supply but are topped by speculative demand from people,” he said.
The bank chief said he briefed the Nigerian leader on some of the plans to address the challenge.
Of course, reversing either or both policies will not deliver the long-term economic redesign Nigeria expects. Our long-term plan to stabilize the Naira will involve improving productivity and overall innovation systems in the nation.
In the next coming weeks (within the next 5 months), the Nigerian government will do: return fuel subsidies or/and go back to dual exchange rate policy. Right now, there is a black swan in the economic permutation in the nation, and it is very significant. Yes, the loans which… pic.twitter.com/KrknfAocf0
— Ndubuisi Ekekwe (@ndekekwe) August 15, 2023
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Comment 1: Ndubuisi Ekekwe I begin to wonder if our brains are in sync Sir. I already felt that this will happen pretty soon because the government may be overwhelmed when they keep trying to get out of this new challenge imposed by the Naira and fuel subsidy experiment. Dual exchange rate will come back, but that’s because they couldn’t figure out a quick solution to the Naira crisis, however the policy is a very bad one which may slow down Nigeria’s economic growth drastically.
On the other hand fuel subsidy total removal is not good for the masses and our economy in general. It should be subsidized to at least 20 to 30% while a serious working government will make our refineries to start working so as to be on the net positive on the oil trades.
Finally, if Nigeria thinks well and grows well, it is odd promoting oil produces, especially petrol because I expect a right thinking economist to build around non-fossil clean energy for adoption in transportation and power generation. This is 2023, we are supposed to outgrow this era into something more juicy and environment friendly, but am sure this hypothesis does not go down well with some strongholds or perhaps cartels that does not want oil to lose its power for a long long time.
Comment 2: The outlined economic challenges in Nigeria underscore the necessity of a pragmatic response. Prioritizing the foreign reserve dilemma is imperative to avert adverse credit rating impacts and escalating borrowing costs. Given the potential inflation risks, a measured, strategic approach is crucial.
Furthermore, considering the populace’s suffering over self-interest is paramount. Redirecting resources toward alleviating the masses’ hardships rather than excessive personal expenditures is not only responsible but essential for stability and public trust. It is a pivotal step in steering the nation towards a sustainable economic path.
I hope it will not be too late to learn the hard way!
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Which liturgical purity of campaign manifestos are you talking about, did their manifesto provide any to begin with, and in which page exactly? This thing started from the campaign season, so anyone who pretends here is a fraud, nobody should ever attempt to change position, because I know where each person stood, no denial this time.
Buhari left those two things there because he didn’t know what to do about them, so he just kept postponing the disaster. What is currently playing out is not surprising, it’s a case of claiming to know what you do not know, but the truth is that economics does not bend to politics, so you will still be brought back to reality of your shortcomings.
They will reverse, because they never had a plan, I don’t believe in noise and propaganda, it is not hard to know who will fail easily in this kind of grandstanding. No refinery was fixed, and no date on when one will be ready, so on what exactly is the subsidy removal expected to hang on? And on top the matter – the naira is on the run, you have no chance if you made double errors of such magnitude.
When are we going to finally admit that it is not everyone is capable of being president of Nigeria, or we still think it has nothing to do with that?
Greetings Prof
Am an ardent reader of your write ups which are very educative
I have a suggestion off the quagmire Nigeria is in currently – cant we as a nation allocate 100k barrels of crude per day to the 3refineries in Kaduna, Warri and Port Harcourt since their combined installed capacity hovers around 450/400k barrels per day. Strengthen the security agencies against selling across the border and instruct Nnpc to sell at a friendly price that will gauge against this present economic woo we are in
The crude will be from a special SPV that will be set up by government ensuring it’s not stolen, misappropriated and the economy isn’t stiffened.
Spot on @Francis Oguaju. Very expensive to have an experimenter at the helm as the iceberg approaches the Titanic. This is the reason why robust debate at campaign level and actual elections based on understanding and awareness of a candidate’s plan of approach is best. Human misery is real in Nigeria of today.