Governor Olayemi Cardoso of the Central Bank of Nigeria (CBN) has admitted that Nigeria lost a total of $1.4bn in 8 years attributing it to the CBN’s restrictions on 43 specific items.
Speaking during the 58th Annual Bankers’ Dinner in Lagos, organized by the Chartered Institute of Bankers of Nigeria (CIBN), Cardoso clarified that these items were not explicitly banned but instead encountered constraints in accessing foreign exchange for importation.
Cardoso emphasized the limitations of the CBN’s authority, underscoring that decisions regarding trade policy, especially concerning the import and sale of the 43 items, fell within the jurisdiction of fiscal authorities rather than the CBN. This clarification aimed to ensure that the removal of foreign exchange restrictions on these items did not encroach upon the responsibilities of other government agencies. The initial circular in June 2015 had listed 41 items as ineligible for foreign exchange, a list later expanded to 43.
On October 12, 2023, the CBN made the pivotal announcement of lifting the ban on foreign exchange for items such as rice, vegetable oil, and poultry products. Cardoso underscored the unintended consequence of these restrictions, which triggered an upsurge in demand for foreign exchange in the parallel market, resulting in exchange rate depreciation and a widening premium between the parallel and official markets.
Studies conducted during the restriction period brought to light a 51.0 percent increase in trade evasion, leading to an annual revenue drop of approximately $1.4 billion between 2015 and 2019. Tariff revenue on goods also witnessed a decline, plummeting from $920 million in 2011 to $250 million in 2017, with the potential to earn $680 million in 2019. Cardoso highlighted the adverse impact of foreign exchange restrictions on households, contributing to inflationary pressures.
Moreover, Cardoso shared that a 50.0 percent reduction in trade restrictions and levies on rice, sugar, and wheat yielded minimal effects on welfare, manifesting only as a modest 0.8 percent improvement and a slight 0.4 percent reduction in extreme poverty. He concluded by asserting that the removal of these restrictions would bolster liquidity in the Nigerian foreign exchange market, with CBN interventions gradually decreasing as liquidity improves over time.
In addition, Governor Cardoso admitted that Nigeria experienced a revenue drop of $1.4 billion between 2015 and 2019 due to the FX restrictions on the 43 items. He explained that during this period, there was a 51.0 percent increase in trade evasion, leading to the unintended consequence of reduced revenue. Furthermore, Cardoso pointed out that foreign exchange restrictions adversely impacted households, contributing to inflationary pressures.
The Governor acknowledged that while the reduction in trade restrictions and levies on certain items had minimal effects on welfare, the lifting of these restrictions would contribute to enhancing liquidity in the Nigerian foreign exchange market. He reiterated that trade policy primarily falls within the purview of fiscal authorities, emphasizing the need for collaborative efforts to navigate and address such economic challenges effectively.
