It is important that government has taken the bold initial step of freeing both the market for domestic petrol and foreign exchange sales. However, on both these reforms, government’s hand was forced.
As if that were not enough trouble, domestic savers with huge amounts of naira in their current accounts, unable to invest in short-dated government securities, and daily seeing the naira disappear as a store of value, re-balanced their portfolios in favour of dollar-denominated assets ― putting pressure on the central bank’s ability to stem the haemorrhage of the gross external reserves.
As with those sectors of the population additionally vulnerable to the health effects of the virus, all of these will exacerbate the adverse consequence of COVID-19 for our economy. It is a fair bet that they might even make the trough of the economy’s contraction this year deeper than estimated by the IMF’s baseline scenario. But the biggest problem they pose is that they will make a recovery that much difficult for us. The IMF is estimating a near V-shaped recovery. Down this year by 3.
It is important that government has taken the bold initial step of freeing both the market for domestic petrol and foreign exchange sales. However, on both these reforms, government’s hand was forced. Back against the wall, there were few outlets remaining. In the absence of a damascene-type conviction on the need for reforms, our economy’s experience of COVID-19 will resemble an exacerbated teacher’s tick on a wayward student’s test scores. Vicious and sharp coming in, languid on the uptake.