The Central Bank of Nigeria (CBN) has blamed the free-fall of the naira on the huge sum of $40 billion spent by Nigerians on foreign education and medical tourism in the last 10 years.
The CBN made this clarification yesterday while giving insights into the constant depreciation of the value of the Naira as against the United States Dollar, creating a volatile exchange rate for the country.
According to the apex bank, the trend is caused by a decline in the supply of US Dollars amid the high demand for the currency to pay for foreign services in the education, health and other sectors.
The CBN governor, Olayemi Cardoso, who stated this at the sectoral debate organised by the House of Representatives, said Nigeria has spent $40 billion on school and medical tourism in 10 years, putting pressure on the Naira, causing it to keep depreciating.
Cardoso explained that foreign education expenses amounted to $28.65 billion while medical treatment abroad incurred about $11.01 billion.
He said given the substantial demand for education, healthcare, professional services, personal travel, and similar needs, the exchange rate is bound to face ongoing pressure.
"Given this data, it's crucial to highlight that between 2010 and 2020, foreign education expenses amounted to a substantial US$28.65 billion, as per the CBN's publicly available Balance of Payments Statistics
"Similarly, medical treatment abroad has incurred around US$11.01 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totalled nearly US$40 billion. Notably, this amount surpasses the total current foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger Naira today.
"Personal Travel Allowances have accounted for a total of US$58.7 billion during the same period. Notably, between January and September 2019, the CBN disbursed US$9.01 billion to Nigerians for personal foreign travel.
"Continuing on the topic of the demand for US Dollars, Nigeria's annual imports, which require dollars for payment, amounted to US$16.65 billion in 1980. By 2014, the annual import expenditure had significantly surged to US$67.05 billion, although it gradually decreased to US$54.71 billion as of last year. Similarly, food imports escalated from US$2.63 billion in 1980 to US$14.84 billion in 2019,"
Cardoso said.
According to him, while inflation pressures may persist, albeit temporarily, they are expected to moderate significantly by Q4 2024, with exchange rate pressures also expected to reduce with the smooth functioning of the foreign exchange market.
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He further stated that the Nigerian foreign exchange market is currently facing increased demand pressures, causing a continuous decline in the value of the naira.
"Factors contributing to this situation include speculative forex demand, inadequate forex supply due to non-remittance of crude oil earnings to the CBN, increased capital outflows, and excess liquidity from fiscal activities.
"The shift to a market-driven exchange rate was intended to create a stable macroeconomic environment and discourage currency hoarding. However, short-term volatilities are attributed to arbitrage and speculation.
"To address exchange rate volatility, a comprehensive strategy has been initiated to enhance liquidity in the FX markets. This includes unifying FX market segments, clearing outstanding FX obligations, introducing new operational mechanisms for BDCs, enforcing the Net Open Position limit, and adjusting the remuneration Standing Deposit Facility cap," the CBN governor said.
Cardoso noted that while the CBN has the mandate of stabilising the exchange rate, achieving results would necessitate efforts beyond the bank itself and indeed to an attitudinal change of all citizens.
He also stated that the relocation of some departments of CBN to Lagos was not a political decision but only an implementation of what had been done before now
"We did not change anything, we have always done this in order to get closer to the banks for best results," he said.
