Nigeria adopts new flexible foreign exchange policy for official transactions

*The Federal Government plans to end using fixed rate for official transactions as the new foreign exchange policy is set to lift Nigeria’s revenue from crude receipts

Isola Moses | ConsumerConnect

Nigeria has decided to adopt a new flexible foreign exchange (Forex) rate policy for official transactions in a move that effectively marks the third devaluation of the Naira in a year.

Mrs. Zainab Ahmed, Honourable Minister for Finance, Budget and National Planning, told reporters Monday, March 22, in Abuja, FCT, the government will start to use the flexible rate, that has until now applied to investors and exporters, for government transactions, too.

The Nafex, as the flexible rate is known, has averaged N410 to the Dollar since the beginning of the year and compares with the Central Bank of Nigeria’s (CBN) old fixed rate of N379.

Ahmed said: “Within the government and the central bank, there is only one official rate and that’s the Nafex rate.”

A weaker naira will boost Africa’s biggest crude producer’s revenue from oil, which has been converted at the fixed official rate.

Earnings from oil exports account for about half of Nigeria’s revenue and about 90 percent of foreign exchange earnings.

Nigeria has already devalued its currency twice since March 2020. The adoption of the flexible rate policy could assist discussions with the World Bank for a $1.5 billion loan that is partly conditional on currency reforms.

The Nafex rate was introduced in 2017 as a way of wooing foreign investors without formally devaluing the currency.

Recently, investors have complained about Dollar shortages.

The central bank is clearing a backlog of demand for dollars “by releasing some certain amounts a month,” Ahmed said.

The International Monetary Fund estimated the backlog at about $2 billion in February.