A Don and Professor of Financial Economics in the University of Uyo, Awka Ibom State, Leo Ukpong, has stated that the Naira will get worse if Nigeria’s External Reserves are depleted.
Ukpong, the Dean of the institution’s Business Administration Faculty, said forex exchange should be channelled towards economic activities that create values in the domestic economy.
These he listed as increasing values of the manufacturing capacities of firms, increasing exports, decrease imports, and capable of generating sustainable employment in the domestic economy.
He warned that subsidising the naira for holiday travels, religious trips, payment of foreign school fees, outward medical tourism, purchase of imported refined petroleum products, and importation of machine parts, would not help the naira to sustain its appreciation.
“Obviously, if the nation’s dollar reserve is reduced to a critically low level, the Naira will certainly take a beating in the market. In other words, naira will come under strong pressure to depreciate.
“Over the past seven weeks, CBN has successfully raised the value of Naira from approximately N510/$ to N390/$ (between February 22, 2017 and April 3,2017), an approximately 24.27 per cent appreciation of the Naira against the US dollars.
“Clearly the implication of such direct intervention by CBN on the foreign exchange market is increased supply of US dollars (appreciation of the naira) in the short term,” Ukpong noted.
He explained that the sustainability of this exercise depended on the rate of forex inflows and outflows.
Noting that over February and March, Nigeria’s foreign exchange reserve increased from $29.61 billion to 30.30 billion, representing a 2.33 per cent monthly increase, he said the country might sustain such intervention being done by the CBN.
“However, based on our long term historical trend, the net impact will be negative on the reserve”, he added.