Stop Using the Foreign Reserves to Subsidize Billionaires, Corruption – Agbaje

While the fight to remove fuel subsidy is being strongly resisted by labour and opposition groups in the country, a perhaps worse form of subsidy has been unveiled in the financial sector. An expert has said, whenever the Central Bank of Nigeria (CBN) uses the foreign reserves to defend the naira by selling dollars to representatives of billionaires and millionaires who have their children studying abroad or people going on holiday outside Nigeria, a subsidy of between N10 and N15 is being doled out at the expense of the Nigerian economy.
“It does not make sensible policy to use the reserve to defend the naira. We are using foreign reserves to create billionaire or millionaire illegally at our own expense.
Anytime you do an exchange rate that is different from the market, you are subsidising those who buy dollar because anybody who buys dollars from Retail Dutch Auction System (RDAS) is receiving a subsidy of N10 to N15 from the Nigerian government”, said Opeyemi Agbaje.
This is because everybody knows that it is N170 per dollar in the market. He said, anybody that issues a subsidy should have strategic reasons for doing so.
“The question is that who are we subsidising, we are subsidising the school fees of all the people that has their children in schools abroad. We are subsidising the holiday of everybody who chooses to go on holiday, we are subsidising the corruption of anybody who steals money and transfer it abroad. We are subsidising wine and Champaign, all the consumption we do”, he said.
Agbaje said, the subsidy could only make meaning when our industries import raw materials and create jobs or anybody that is importing currency for otherwise productive purpose.
“So I don’t support the CBN’s determination, as espoused under Sanusi and supported by most Nigerians to protect the naira at the expense of our reserves and at the expense of our common patrimony, because it is collective subsidy to capital flight, to MTN in remitting its profit, to all the foreign companies to remitting their profits, to importing wine, holiday, petrol which we should be producing in Nigeria. It does not make economic sense.
“I don’t like sharp depreciation or large devaluation because it impacts more shock to the economy. For instance in 2008 when the global financial crisis happened, we had kept our exchange rate at N117 per dollar, N118 per dollar for like four to five years, and when the oil prices hit us, we moved from N118 per dollar to N150, and that was a stronger shock to the market. That is why I don’t like such sharp devaluation”, he said.
His fear is that, the risk of the policy we have followed is that it makes it mandatory that one day we would do a massive devaluation that then distorts the economy and cause structural problems. “I am in favour of more flexibility exchange rate that send the signal to the market, that when the monetary authorities sees that the currency is under attack, responds by increasing the price of the currency, and when it sees that the currency is strong again, it can even strengthen the exchange rate back, that moderates the monetary policy environment based on a multiple of factors rather than just a single minded commitment to protect the exchange rate”, said Agbaje.
My advice to the incoming central bank governor is to take a little bit of flexibility in relation to the exchange rate even at a cost of a one off inflation pressure. I think we can still keep inflation below 10 percent. I will rather some flexibility in exchange rate and 9.0 percent inflation for instance than depleting reserves perpetually and sending the wrong signal to currency speculators and encouraging moral hazard.

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