The undebated driver of naira devaluation, inflation and dwindling economy, by Abubakar M Kareto
One of the most well-known consequences of subsidy removal on people is the high price of petrol (PMS), which drives up the cost of transportation for people, goods, and services.
However, the current devaluation of the Naira is also due to the elimination of subsidies, and the effects of this are more severe than even the increase in PMS prices.
What is the impact of subsidy removal on the naira? The devaluation of the naira was caused in part by the actions of governments following the Federation Account Allocation Committee’s (FAAC) transfer of funds.
The FAAC usually shares 600–700 billion naira a month on average before petroleum subsidies are removed. Governments now have enormous amounts of naira after the monthly FAAC unexpectedly increased to almost 1 trillion naira.
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The implication is that large amounts of naira will be in circulation as a result, and the limited USD in the country will be under additional pressure because governments frequently convert most of these FAAC monies, which are usually paid in naira, into dollars on the black market.
Now why the conversion? So many government contracts can only be executed using USD, i.e., the supply of new vehicles, and a good percentage of these contract monies are kickbacks, and kickbacks are only delivered in USD to government officials because they are easy to move and hide.
The solution is for the government to monitor Bureau de Change operations through anti-graft agencies such as the EFCC, ICPC, police, DSS, and other agencies to stop any questionable transactions; additionally, officials should be prevented from widespread corruption and opulent government contracts such as the acquisition of new cars should be suspended temporarily.
Abubakar M Kareto is a Public Affairs Analyst.
