The Chairman of the Presidential Committee on Fiscal Policy and Tax Reforms, Taiwo Oyedele, has pointed to discretionary demand for foreign exchange (FX) as a central factor driving the naira’s volatility, stressing that sustainable currency stability hinges on addressing this challenge.
Speaking at the Nigerian Economic Summit Group’s (NESG) half-year review of the economy in Lagos, Oyedele highlighted that while Nigeria continues to enjoy net inflows of dollars, unchecked discretionary demand could undermine efforts to stabilise the national currency.
“If we produce and keep producing without addressing discretionary demand, the naira will not stabilise at a lower rate,” Oyedele said.
Data from the first half of 2025 revealed relative resilience for the naira.
According to Norrenberger’s latest report, the currency appreciated marginally by 0.20 per cent in the official market, closing at N1,532 to the dollar, while it gained 5.10 per cent in the parallel market, closing at N1,575 to the dollar.
Oyedele cautioned that these gains could be reversed if discretionary FX demands persist unchecked, particularly from speculative or non-essential transactions.
“The naira is significantly undervalued. Imagine if we get the naira to sub 1,000 per dollar; just imagine what that means for inflation, the cost of living, standard of living, and poverty reduction,” Oyedele explained, emphasising the broader economic benefits of a stable and strong national currency.
Oyedele also called for greater transparency in the allocation of funds through the Federation Accounts Allocation Committee (FAAC).
He suggested that conditions for monthly disbursement should include accountability mechanisms beyond simple population-based formulas.
“Why don’t we make the conditions of sharing money on a monthly basis include transparency? Why is it only the population of the state?” he questioned, linking transparency in resource allocation to macroeconomic stability.
On the topic of tax reforms, Oyedele clarified that the recent adjustments, including proposed increases in Value Added Tax (VAT), were aimed not at generating more revenue immediately but at improving compliance and reducing evasion.
“One of the reforms we considered was raising VAT, but it wasn’t popular. The reform we did is likely to result in a drop of VAT revenue by up to 60 per cent,” he said.
He emphasised that closing the tax gap by enforcing compliance would ultimately strengthen government revenue without placing undue burden on taxpayers.
Oyedele’s observations underscore the delicate balance policymakers must maintain between FX supply, demand, and broader economic objectives.
Discretionary FX demand, which includes speculative transactions and non-essential imports, can exacerbate pressure on the naira and heighten inflationary risks.
Analysts suggest that alongside robust central bank interventions, policy measures targeting discretionary demand, such as FX rationing for non-essential goods and tighter reporting of capital flows, are essential for long-term currency stability.
The Central Bank of Nigeria (CBN) has been actively intervening in the FX market to maintain stability.
According to Oyedele, these interventions have been partly responsible for the relative resilience of the naira in the first half of 2025.
However, he warned that without addressing structural challenges such as discretionary demand and transparency in fund allocations, the naira’s gains could remain fragile.
Looking ahead, economists stress that the naira’s trajectory will depend on coordinated efforts between the CBN, the fiscal authorities, and the private sector to manage FX demand effectively.
Encouraging domestic production, reducing reliance on imports, and promoting foreign investment and diaspora remittances are key strategies to support the naira.
Oyedele concluded with a strong call for proactive policy measures, stating that Nigeria’s economic resilience depends on tackling discretionary FX demand head-on while fostering transparency, fiscal prudence, and tax compliance.
“If we get these fundamentals right, the naira can stabilise, inflation can be managed, and Nigerians’ standard of living can improve significantly,” he said.
With discretionary FX demand identified as a critical driver of volatility, stakeholders are now looking toward pragmatic interventions that balance market forces, regulatory enforcement, and economic growth imperatives to safeguard the naira in the coming months.
