Multiple FX windows cost Nigeria 3% of GDP – CBN

The Central Bank of Nigeria (CBN) Governor, Olayemi Cardoso, has said that losses arising from Nigeria’s multiple foreign exchange (FX) windows amounted to about three per cent of the country’s gross domestic product (GDP).

Mr Cardoso disclosed this while responding to questions after the 307th meeting of the Monetary Policy Committee (MPC) on Tuesday in Abuja.

PREMIUM TIMES previously reported that CBN moved to reset the Monetary Policy Rate (MPR) and recalibrate the policy corridor, cutting the benchmark interest rate to 23 per cent, from 26.5 per cent.

The governor stated that the decision is an important operational realignment aimed at strengthening monetary policy transmission.

CBN said its reforms have improved Nigeria’s macroeconomic conditions, and the latest policy reset is intended to strengthen how monetary policy operates without abandoning its focus on inflation.

While reflecting on the results of the apex bank’s monetary policies in the past three years, Mr Cardoso expressed confidence in the policies citing retaking of Nigerian banks to their core mandates after recapitalisation and stability of the foreign exchange markets.

Before the CBN’s FX reforms were introduced in 2023 to unify exchange rates market, Nigeria had different channels through which dollars could be bought and sold, with different exchange rates applying to different users or transactions.

“We are coming from a bad place. We were able to take the bank back to its core mandate. We had a dysfunctional foreign exchange market where there were multiplicities of rates, depending on who you knew. We have succeeded in closing those gaps, unifying exchange rates,” he said.

According to him, the losses associated with the differential exchange rates were greater than those incurred under the fuel subsidy regime, which he put at about 2.2 per cent of GDP.

“The losses from fuel subsidy were in region of 2.2 per cent, that is a staggering amount of money. The losses that we were making as a result of these multiple exchange rate windows was more. It was 3 per cent of GDP. So between those, you had 5.2 per cent of GDP lost,” he said.

The governor said CBN’s decision to unify the foreign exchange market and adopt a willing-buyer, willing-seller framework had eliminated what he described as a major distortion in the economy.

He said the former system created multiple exchange rates and allowed access to foreign exchange at different rates depending on the market window available to participants.

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According to CBN, the unification of the FX market was part of its broader reforms aimed at allowing market forces to determine exchange rates and improving transparency in foreign exchange transactions.

Mr Cardoso said the reform was important because the losses arising from the different exchange-rate windows were unsustainable.

The governor said the current willing-buyer, willing-seller system had improved transparency and allowed the market to determine the exchange rate.

“Obviously, from our perspective, we are happy, very pleased that we’ve been able to literally eliminate that distortion, and that a system of willing buyer, willing seller, which allowed transparency and allowed the market to find its own level, is where we are today,” he said.

Mr Cardoso added that the reforms eliminated what he described as a distortion that had affected the Nigerian economy for years.