…..the government’s revenue denominated in the local currency (naira), resulting in a higher ratio of tax revenue to GDP.
By Johnson Atoukudu
According to a statement released by the Institute of Chartered Accountants of Nigeria, the consolidation of the country’s exchange rate would have a positive impact on the development of the securities market and encourage foreign investments to flow into the nation.
The institute emphasized that the previously implemented dual-window exchange rate system significantly contributed to various negative factors, including inflationary pressure, corruption, excessive debt, and decreased investments in the country.
The statement further highlighted that unifying the exchange rate would lead to an increase in the government’s revenue denominated in the local currency (naira), resulting in a higher ratio of tax revenue to GDP.
The statement read partly, “The inflow of capital from foreign portfolio investors into the Nigerian capital market will help grow the market and allow companies to raise capital efficiently to finance their growth ambitions.
“It is expected that the unified exchange rate will serve as a catalyst for investment flows into the country, which will boost our foreign exchange reserve, grow the economy, create employment, and improve the quality of life. Foreign portfolio investors are expected in the near term whilst foreign direct investors that require more investment appraisal time will come in subsequently.”
However, the institute pointed out that there could be a downside to the unification of the exchange rate. It expressed concerns that businesses might encounter foreign exchange losses resulting from the higher exchange rate, which could lead to a decline in corporate tax collection.
Additionally, the statement highlighted that the service cost of Nigeria’s external debt, which is denominated in foreign currency, would rise. As a result, the country’s current public debt, currently exceeding $40 billion, would increase by N12 trillion.
Furthermore, ICAN stated that the total debt to Gross Domestic Product (GDP) ratio would also experience a five percent increase due to the total debt rising to N90 trillion.
It read further, “This new policy is applauded by the Institute of Chartered Accountants Nigeria. It is expected that this action will generally lead to short-term pains that will yield long-term gains. We, however, provide the following recommendations to ensure that the desired objective of this policy is achieved and there is growth in the Nigerian economy.
“Timely appointment of a new CBN governor, who will provide a credible long-term direction for this policy: This will provide certainty and stability, and boost investor confidence to inflow capital into the country. Effective and consistent implementation of the policy: This will ensure that no uncertainty is created by the mode of implementation and there is constant communication with key stakeholders such as businesses and investors amongst others.”