Economists at the centre also said there was a need for the
CBN to review its foreign exchange policy in 2022 with a view to improving
dollar liquidity in order to rescue the ailing naira and help industries to
grow.
The group disclosed this in its economic and business
environment review for 2021 and agenda for 2022, a copy of which was obtained
by our correspondent on Sunday.
According to the CPPE, there is a need for the CBN to engage
stakeholders as its current forex policy regime is negatively affecting
investors, manufacturers and other stakeholders.
The CPPE said, “In the bid to reduce the pressure on foreign
reserves, the CBN had excluded over 40 items from access to foreign exchange in
the official window.
“Some of the products on this list are intermediate products
for some manufacturing firms which have negatively impacted some manufacturers.
It would be advisable for the CBN to have a robust engagement with the
stakeholders to review this list in the New Year.”
According to the organisation, the CBN should adopt a
flexible exchange rate policy regime, and allow the pricing mechanisms to
reflect the demand and supply fundamentals in the foreign exchange market.
It said, “Our proposition is that we should adopt a flexible
exchange rate policy regime. We would
like to clarify that this is not a devaluation proposition.
“Rather, it is a pricing mechanism that reflects the demand
and supply fundamentals in the foreign exchange market. It is a model that is sustainable,
predictable and transparent. It is a policy regime that would reduce
uncertainty and inspire the confidence of investors.
“It is a policy framework that would minimise discretion and
arbitrage in the foreign exchange allocation mechanism. A flexible exchange
rate regime is a policy choice adopted to cope with changing demand and supply
conditions in the forex market.”
According to the centre, adopting a market rate would deepen
the autonomous foreign exchange market by liberalising inflows from export
proceeds, diaspora remittances, multinational companies, donor agencies,
diplomatic missions, and others.
It added that a flexible exchange rate would enhance
liquidity in the forex market, increase investors’ confidence, and ensure a
more transparent model for forex allocation.
Also, the CPPE said the Cash Reserves Requirements imposed
on Nigerian banks by the CBN is one of the highest globally, adding that it is
a major impediment to financial intermediation by banks.
According to the experts, some of the banks have a CRR of 50
per cent and more against the official CRR of 27.5 per cent.
It said, “Yet, financial intermediation is supposed to be
the major function and essence of the banking system. The high CRR has made it
difficult for the banks to play their primary role of financial
intermediation. Their profitability is
also adversely impacted because of limited room for credit creation activities.
“Indeed, the ways and means finances of the apex bank pose
greater liquidity risk to the economy than bank deposits. We therefore seek a
reduction in CRR so that the banks can be better placed to play their primary
role of financial intermediation in the economy.”
The CPPE also said challenges of infrastructure, rising
insecurity, climate change, low productivity in the agriculture, monetisation
of fiscal deficit, and depreciation of the naira were fuelling inflation in the
nation.
It said headline inflation was 16.47 per cent in January,
and rose to a peak of 18.17 per cent in March, before falling to 15.40 per cent
in November.
The organisation said, “Headline inflation has been on the
increase on a month-on-month basis from January to date, albeit at a reducing
rate.
“Meanwhile, food inflation has been consistently higher than
headline inflation and core inflation for most part of the year. Inflationary
pressure remains a major cause for worry both for businesses and the households
as it remains elevated.”
According to the organisation, the implications of these
include, increasing poverty, increasing risk of malnutrition, increasing social
tension, and criminality.
It added that businesses had had to deal with weak
purchasing power, low sales and low profit margin, low-capacity utilisation,
high production and operating cost, and high risk of increased business
mortality.
The CPPE said in order to tackle inflation, the nation
needed to boost productivity to drive output growth, reduce the depreciation of
the naira exchange rate, and improve the flow of foreign exchange.
The CPPE added that the nation needs to, “Minimise the monetisation
of fiscal deficit. CBN financing of deficit should be strictly limited to
statutory threshold spelt out in the CBN Act.
“Government should seek creative ways of addressing
insecurity in order to pave the way for farmers to return to their farms.
Address cost of logistics. Address the ease of cargo clearing at the port.
Address climate change concerns. Review our trade policy to bring down the cost
of some intermediate products for manufacturers.”