The Central Bank of Nigeria (CBN) has said it is impossible to utilize the country’s External Reserves for infrastructural development as well as payment of workers’ salaries as being canvassed in some quarters. It maintained that the external reserves is strictly meant to be used in defending the naira and instilling the confidence of the international business community in the economy.
The apex bank’s clarification came against the backdrop of agitations by notable individuals who are seeking the utilization of the country’s foreign reserves to off-set part of the fiscal deficit amid the dwindling oil revenues caused by the slide in global oil price.
Speaking at the 20th annual Central Bank of Nigeria (CBN) Seminar for Finance Correspondents and Business Editors held recently in Calabar, Cross River State, CBN Director, Reserve Management Department, Mr. Lamido Yuguda, said given that the naira is not a convertible currency, it has to be continually backed up by the US dollar to preserve its value. He said the higher the foreign reserves of a country, the more confidence and interest it attracts from foreign investors in terms of capital inflows into the economy.
Speaking on the “Impact of External Reserves Position on Capital Flows: The Nigerian Experience”, the CBN director further noted that naira’s true value depended on the value of the country’s foreign reserves denominated in US dollar. He said: “The constitution of the Federal Republic of Nigeria expressly states that the legal tender currency in Nigeria is the Naira. Consequently, the foreign exchange inflows received by the CBN on behalf of the federation must be converted into Naira before it is credited into the federation account.
He said: “Nigeria was able to attract all types of foreign capital before the 2008 global financial crisis due partly to robust level of reserves, only FPI flow was sustained at a higher level after the crisis. “It is recommended that in order to attract more direct investments that are more stable and less speculative. The country must develop the requisite infrastructure for the growth of the real sector. Security of lives and property must also be among the top priorities of government.” He also further argued that the country must diversify its sources of foreign exchange earning in order to address the dominance of the oil sector.
Yuguda said the National Sovereign Investment Authority (NSIA) should also be strengthened through more funding in order to establish fiscal buffers that will improve Nigeria’s credit rating. He added: “A robust level of external reserves provides confidence to the international community that the country can meet its international obligations, hence, the higher the level of external reserve holdings by a country, the more capital it will be able to attract.
“The growth of an economy amidst a sound financial and political environment attracts foreign investments, bringing with it attendant benefits. Thus, sustained capital inflows above outflows cushion the effect of foreign exchange demand as confidence is established in the financial system and the strength of the economy.” According to him, to sustain the level of capital inflow particularly the foreign direct investment (FDI) in to the country, there must be strong economic fundamentals.
