- Nigeria set FX controls to save reserves
- Action has impacted imports, trade with others
- WTO chief to discuss FX issues with Nigeria c. bank
- At least nine WTO members have voiced disquiet
The World Trade Organisation is concerned about Nigeria’s foreign exchange management and how it has been used to support manufacturing, exports and imports, the global body’s director-general said on Monday.
Ngozi Okonjo-Iweala – a former Nigerian finance minister who took the top job at the WTO this month – said some WTO members have brought complaints and that Nigeria needs to explain its foreign exchange regime to them.
Okonjo-Iweala said Nigeria has invoked WTO’s agreement on balance of payment to conserve foreign exchange.
Nigeria’s balance of payment gap hit US$14billion in 2020 as the result of a wider budget deficit triggered by a COVID-induced oil price crash that slashed revenues, weakened the naira and caused dollar shortages.
“It invoked this article, but some other members have brought a complaint against us that we shouldn’t have used this article in that way,” Okonjo-Iweala told reporters after meeting Nigerian President Muhammadu Buhari.
“So, yes, the WTO is concerned about foreign exchange, the way we manage it and how we use it to support manufacturing, export and import in our economy.”
Nigeria’s central bank, seeking to conserve its dollar reserves, curbed access to the interbank market for a wide range of importers to boost local production. It set up a multiple currency regime in 2015 to manage pressure on the naira.
Since then, some firms have defaulted on contracts, lost credit lines and have had to deal with foreign suppliers worried that they will not get paid, while the currency has lost ground against the dollar, the local chamber of commerce has said.
At least nine WTO members including the United States and European Union, first raised concerns about the trade-related impact of the rules at a meeting of the WTO’s Council for Trade in Goods in 2015.
Washington cited the effect on U.S. exports such as agricultural goods, plastics, aircraft and aircraft parts and metal and metal products that were worth US$500million in 2013 and 2014, a WTO official said.
Other countries with concerns were Thailand, which was worried about the impact on agricultural shipments; Norway and Chile, which feared the impact on fish; and Switzerland, Uruguay, Iceland and Malaysia over the ‘systemic’ impact.
Okonjo-Iweala said she will meet Nigeria’s central bank governor to address some of the issues.
Nigeria’s central bank has favoured a strong naira – a policy backed by Buhari, who sees it as a matter of national pride. The bank has argued that a weaker naira will stoke inflation, which has been in double-digits since 2016.
The central bank has rejected calls for a more flexible currency, which the International Monetary Fund and the World Bank have said will help Nigeria absorb future shocks.
But the bank has battled to keep up with dollar demand, as past-due obligations for importers pile up and foreign investors struggle to repatriate funds.