Gap Between NAFEX, Parallel Market Rates Will Worsen FX Scarcity

By Aduragbemi Omiyale

The current foreign exchange (FX) scarcity will worsen if the Central Bank of Nigeria (CBN) does nothing about the wide gap between the exchange rates in the parallel market and the Nigerian Autonomous Foreign Exchange (NAFEX).

This was the submission of S&P Global Ratings in its latest report released this week, which was made available to Business Post.

The agency noted that the difference between the spot market rate and the parallel market creates an avenue for manipulations in the currency market.

At the close of business on Thursday, the Naira was exchanged with the Dollar in the official market at N436.63/$1 after appreciating by 87 Kobo or 0.02 per cent, while on the streets, the exchange rate was N731/$1.

From the above, the exchange rate gap between the two segments of the forex market is N294.37 or 67.4 per cent, which S&P is of the opinion that it will further cause the FX crisis in the country to worsen. This is because a few powerful people can get the forex from the central bank under any guise to sell at the black market, making a gain of nearly N300 per Dollar.

A former Governor of the CBN, Mr Lamido Sanusi, had once cried on top of the roof that this system was making some people become billionaires without breaking a sweat, calling for the merging of the rates into one.

The World Bank and the International Monetary Fund (IMF), and others have also advised Nigeria to think in this direction for the good of the local currency, but the CBN has remained adamant, preferring to dip its hands into the external reserves to defend the Naira.

“Although foreign exchange reserves are still holding up at around $37 billion, pressures on the naira exchange rate are persisting.

“The difference between the Nigerian Autonomous Foreign Exchange Fixing Mechanism (NAFEX) rate and the parallel rate has widened by about 65 per cent.

“This will exacerbate foreign exchange scarcity as structural issues are yet to be addressed, undermining the performance of key sectors in the economy,” the agency said.