The Central Bank of Nigeria (CBN) has devalued the naira, the first time in several years. Its governor Godwin Emefiele announced the devaluation to journalists after a meeting of the bank’s monetary policy making committee (MPC). Now the local currency will be 168 naira to the United States’ dollar officially, instead of N155. The CBN also advised the federal government to revise downward the oil price benchmark for the 2015 budget from $78 to $73 to be in “a safer position”. Other monetary measures adopted by the bank are an increase in the rate at which it lends to deposit banks from 12 to 13 percentage points and an increase in the cash reserve requirement for private sector deposit from 15 to 20 percent.
All that was the CBN’s reaction to the slump in the prices of crude oil on the international market. The price of the light Brent crude which Nigeria produces has fallen to $70. Market experts describe it as “free fall”. An immediate fallout of this is a drop in Nigeria’s foreign reserves from US$40.7 billion on September 17, 2014 to US$36.75 billion at end-October, 2014. Before the CBN came up with its measures, the government, through the minister of finance, Mrs. Ngozi Okonjo-Iweala, had announced a number of austerity decisions aimed at dealing with the oil price drop. She said the government would beg to tax “luxury goods” such as private jets and yachts, expensive cars and beverages. There would also be a drastic cut in foreign travels by government officials. There has been talk of government removing the remaining fuel price subsidy. At present, petrol sells for N97 a litre; this is likely to double in the New Year.
Clearly, Nigeria is facing a budget crunch. What is lamentable is that we saw this coming a long time ago and did nothing. The United States, for example, has been stockpiling fuel and aggressively exploring non-fossil energy sources. Much of the Middle East which produces most of the world’s oil and Russia are pumping more oil now than is needed, thereby depressing prices. Okonjo-Iweala captured the nation’s unpardonable complacency in these words, “Every country that is well managed doesn’t just sit and allow a situation to happen to them. If they are well managed, they prepare the right set of policies to deal with the situation…In the 80s, when we had shocks, we didn’t take measures by ourselves to adjust. We waited for others to come and tell us how to adjust.”However, now, she believes “we have competent teams and our job is not to sit and wait, but, to craft a set of policies that will help us to address the shocks.” Really? If we had “competent teams”, how come they did not foresee the volatility in the oil market until we were hit by the price slump?
Perhaps, it is good that this is happening. Now is the time to do the needful – diversify an economy that is 99 percent dependent on oil to drive it. Okonjo-Iweala recognizes that “we retain some important advantages such as a broad economic base driven by the private sector…” We hope and pray that diversification will be real this time, not another swan song. The finance minister called for “sacrifices where necessary” to meet “this serious challenge”. We are sure that the people being called on to make sacrifices are the already pauperized teeming poor; the rich will carry on as usual. And with elections on the horizon, politicians, particularly those in government, are certain to splash slush funds.