Expert Breaks Down Why Chatham House Advised FG Against Strengthening Naira
- The Chatham House recently warned the federal government against strengthening the naira
- This advice triggered lots of reactions from Nigerians, many of whom thought their stance extreme
- Legit.ng presented the issue to an economist to break down the reasons why Chatham House does not want Nigeria to strengthen the naira
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Legit.ng journalist Ruth Okwumbu-Imafidon has over a decade of experience in business reporting across digital and mainstream media.
Amid the efforts of the Central Bank of Nigeria to stabilise the naira, the foremost research policy institute in the UK, Chatham House, warned the federal government against strengthening the naira.
The research think-tank offered a long list of reasons and several benefits the government could harness from a weakening naira.
This advice triggered several reactions from Nigerians on social media, who felt the advice was ill-based and not in Nigeria’s interests.
Source: Getty Images
Legit.ng spoke to an economic analyst to understand why Chatham House does not want the Nigerian government to strengthen the naira. Here's what he said.
Weaker naira keeps foreign investments in Nigeria
Samuel Oyekanmi, Analyst at Norrenberger, explained to Legit.ng that the policy institute is discouraging the government from artificially strengthening the naira or taking any steps on it just as a means to tackle inflation.
Oyekanmi explained that Chatham House is basing its stance on several benefits Nigeria can get from a weaker naira, including attracting more foreign investors.
He explained;
"The point is that the devaluation of the naira is able to encourage the inflow of FDIs, and they are advising that rather than fighting inflation through strengthening the naira, the government should work the monetary side of things."
Responding to the question, "Does that mean foreign investors are encouraged to bring funds into the country when naira is weaker?" Mr. Oyekanmi said;
"Yes, because fewer dollars will convert to higher naira. Technically, if naira strengthens, there won't be enough incentive to keep their monies in naira, by the time they are ready to repatriate, the USD value will be eroded."
He acknowledged, though, that a weaker naira means higher inflation for the local economy. He added that Chatham House advised the government to tackle inflation, but not by following the easy option of artificially strengthening the naira.
"A fair summary is that you can tackle inflation, but don't do it by artificially strenghtening the naira because that comes with consequences."
Source: UGC
The options suggested by Chatham House to tackle inflation are encouraging customer deposits with increased interest rates, ramping up government revenue generation, and blocking leakages.
Mr. Oyekanmi explained that even though interest rates are high, the differential between lending and deposits is large. This means that while banks are incentivised to make premium interests on loans, depositors are not as encouraged.
He said;
"The action point would be for the CBN to adjust the assymetirc corridor around the MPR to benefit deposits."
Chatham House warns FG against strengthening naira
In related news, Chatham House, a research policy institute in London, warned President Bola Tinubu not to strengthen the naira.
In a statement, the think tank listed out the benefits Nigeria is enjoying from a weaker naira.
It also mentioned a lot of things that could go wrong if the government chooses to halt the naira depreciation, stressing that it would be worse than the problems caused by fuel subsidies.
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Source: Legit.ng
