On Thursday, the Federal Government announced its decision to establish a Naira-to-dollar exchange rate of N800 in the 2024 Appropriation Act, taking into account the overall performance of the naira.
The government emphasized its rationale for avoiding reliance on a spot rate as the basis for the foreign exchange benchmark in the 2024 budget, aiming to mitigate potential uncertainties and unforeseen circumstances.
Addressing State House correspondents, the Minister of Budget and National Planning, Atiku Bagudu, clarified that initially, the Federal Government had opted for a projected exchange rate of N750 to the dollar in the 2024 budget. However, this figure was subsequently raised to N800 to the dollar by the National Assembly.
Bagudu said, “For budgeting purposes, you don’t use the spot rate of anything. Oil prices can go to 120 today, maybe there is a shortage, or maybe there is a collision between two ships that will block a channel.
“It would be foolish to use that as a reference price, I should take a period maybe six months to one year and say let me observe this average behaviour, so you don’t use spot prices. So even with the exchange rate, it is like that.”
He explained further, “Much as we are hoping that it would soon come below, but at the time you are doing the budget, you will take a view on average performance. And that’s what we took.
“We took an average performance of N750 on the executive side and we proposed it to the National Assembly.”
The minister also said that Tinubu regarded the National Assembly’s decision to raise the rate further considering his respect for institutions and democracy.
“So, he respected democracy that even though it was higher than what he submitted, but the institution that says so has the authority to say so and even at the time they say 100 because it’s not an official rate it’s tidal because, with the deregulated market, you no longer have an official rate, it is much lower than even the way the markets are bidding,” the minister said.
The minister noted that the FG is positive that its current measures would soon yield a significant increase in the supply of foreign exchange in the economy.
Bagudu also spoke on the level of borrowing to fund the deficit in the 2024 budget, saying there is a significant difference between 2024 borrowing compared to last year’s.
“In 2023, the budget anticipated a borrowing of close to N14tn. This year’s budget is N9.1 trillion. So we think that is significant.
“Because it’s 2023 took us to about 6.11 per cent of our GDP as borrowing. This one is 3.8 per cent. So the quantum had decreased,” Bagudu added.
The former Kebbi State Governor said the FG will operate strictly within the dictates of fiscal responsibility law in the new year, which provides for the Central Bank of Nigeria to lend to the government through its Ways and Means window, only 5 per cent of the total budget.
He explained, “We will not go outside the law and borrow from ways and means, what is outside the law. So the fiscal responsibility law says, that every year, the central bank can lend the government up to 5 per cent of its budget for the year.
“So if you go out of that, you’re going outside the lawful limit, and that’s what the minister of Finance and Coordinating Minister of the Economy was very clear we are not going to do. We are not going to resort to borrowing outside the law.
“And secondly, as much as possible, we will even borrow away from the central bank because sometimes it’s even cheaper to borrow. So, those are the two elements. So the quantum has decreased, then we will go by the book.”
