The World Bank has urged the Central Bank of Nigeria (CBN) to avoid intervening in the foreign exchange market through forex auctions.
In its recent Nigeria Development Update, the institution emphasised the need for the CBN to reaffirm its commitment to a flexible exchange rate, advocating for a comprehensive and transparent approach to foreign exchange interventions.
“Exchange rate policy should focus on maintaining a unified, market-reflective exchange rate,” the report stated, suggesting that allowing more trading flexibility would deepen the foreign exchange market.
This comes after the CBN auctioned $876.26 million to end-users on August 26, marking a significant shift from its past practice of selling foreign currency to Bureau De Change operators.
Despite the CBN’s goal to enhance market liquidity, World Bank officials warned, “Refraining from ad-hoc forex auctions is crucial.” The report highlighted that current interventions, while intended to stabilise the naira, could undermine market confidence.
At the recent IMF/World Bank annual meeting in Washington, Nigeria’s Finance Minister, Wale Edun acknowledged that the government had not fully adopted all policy recommendations from international agencies. “We don’t always have to take their advice,” he asserted, although he noted the importance of their insights.
Meanwhile, the report revealed concerning data about Nigeria’s banking system, citing non-performing loans reaching 5.1%, just above the acceptable limit. “This indicates that a higher percentage of loans are at risk of default,” the report added.
