A Look At The Implications Of Naira Exchange Rates Unification

Nigerian Naira now exchanging in the official forex market at market-determined rates, a significant distortion has been removed.

It this no doubt that this will come with both positive and negative implications, according to Taiwo Oyedele, an economist and partner at consulting firm, PWC Nigeria.

A Look At The Implications Of Naira Exchange Rates Unification

Below Are Few Implications Of Naira Exchange Rates Unification:

• Significant rise in government debt in naira terms by about N12 trillion to N90 trillion i.e. external debt of $42bn will increase by the difference between the old and new rates.
•  As a result of the above, debt to GDP ratio will increase by about 5%
•  There will be a corresponding increase in debt service cost with respect to foreign debt service
• The government’s revenue will increase in naira terms resulting in a higher tax/revenue to GDP ratio. Corporate tax collection may however decline as many businesses crystallize forex losses due to the higher exchange rate
•  Possible reduction in budget deficit if government’s forex revenue exceeds foreign currency obligations, an increase in budget deficit will arise if otherwise
•  Possible impact on the pump price of petrol which could inch closer to the current pump price of diesel
• There should be some cost savings as government discontinues the various fx interventions e.g. Naira4Dollar, RT200, etc which cost tens of billions of naira
• The country will attract fx inflows, especially from portfolio investors, FDI, and exporters’ proceeds. The impact on diaspora remittances would be marginal.
• The capital market will benefit as it is likely to appreciate further as foreign investors take position
• There should be negligible impact on the general prices of goods and services as products are already factored in parallel market rates to a large extent.

BY IYABO AINA

Publisher Of News Rain Nigeria