The growing debate about whether to devalue Nigeria’s currency came up again on Tuesday at a keynote panel involving three governors of Africa’s largest economy which has been hard hit by the slump in crude prices. Oil accounts for over 90 percent of Nigeria’s foreign exchange earnings.
The International Monetary Fund (IMF) had in Februrary urged Nigeria’s central bank to allow the local currency to devalue as part of ways to reverse the impact of low oil prices on the country. But President Muhammadu Buhari had insisted that Nigeria will not devalue the naira. Nasir El-Rufai, Governor of northern Nigerian state Kaduna, shares the president’s sentiment. According to him, devaluation is not in the best interest of the country.
“In my life time, I have seen 3 rounds of devaluation of the currency,” says El-Rufai who said he had always been in support of the popular economic policy, “but right now I am against it, I have clearly not seen the benefits of devaluation to us”.
“Is the market the only way to solve the scarcity problem? I don’t think so,” the governor said at the Nigeria Summit organised by The Economist.
He stressed that devaluation is an elitist strategy but the government cannot continue to subsidize the elites. He added that the only value of devaluation is the removal of corruption in the distribution system.
El-Rufai said a retreat would soon hold in the country to look at other options other than the orthodox system of devaluation.
The Kaduna governor also called on banks to reduce interest rates as no business could succeed with the current rates. “Only traders and rent seekers benefit from high interest rates,” he says.
Nigeria’s central bank maintained its benchmark interest rate at 11 percent in January. However, banks lend to businesses at about 20 percent.
El-Rufai urged banks to bring down lending rates close to zero, or “one day we (government) will have to bring it down for you”.