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$39.6bn spent abroad caused forex crisis – CBN

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By Abraham Adekunle

Impact of foreign education and medical tourism as the roots of forex crisis.

In a recent revelation, the Central Bank of Nigeria (CBN) attributed the ongoing freefall of the naira to a staggering $39.6 billion drained from the country’s coffers over a decade, between 2010 and 2020. The culprit? Expenditure on foreign education and medical tourism, according to the apex bank. Breaking down the figures, the CBN disclosed that an overwhelming $28.6 billion was allocated to funding foreign education, while an additional $11 billion was funnelled into foreign medical trips during the same period. Governor Olayemi Cardoso of the CBN delivered this crucial information during a presentation before the House of Representatives, underscoring how these expenditures have played a pivotal role in the country’s foreign exchange crisis, consequently driving the naira to depreciate significantly, with exchange rates soaring to over ₦1,400 at the official market.

Highlighting the magnitude of the situation, Cardoso emphasized that these substantial outflows have outpaced the country’s foreign exchange reserves, exacerbating the strain on the nation’s currency reserves. Moreover, Cardoso pointed out that the CBN had made provisions for school fees and healthcare at a CBN-approved rate, yet the relentless drain on foreign exchange resources persists. Delving deeper into the data, Cardoso referenced statistics from the UNESCO Institute, revealing a startling increase in the number of Nigerian students pursuing education abroad.

Students studying abroad and medical tourism stats.

From less than 15,000 students in 1998, the figure skyrocketed to over 71,000 in 2015 and continued its upward trajectory, reaching 96,702 students by 2018. The projection indicates that the number of Nigerian students studying abroad is poised to exceed 100,000, with the UK witnessing a significant surge in Nigerian enrolments, projected to increase by 64% from the 2009-2020 academic session to the 2020-2021 session. Cardoso emphasized, “Given this data, it is crucial to highlight that between 2010 and 2020, foreign educational expenses amounted to a substantial $28.65 billion, as per the CBN’s publicly available balance of payment statistics.”

He continued, “Similarly, medical treatment abroad has incurred around $11 billion in costs during the same period. Consequently, over the past decade, foreign exchange demand for education and healthcare has totalled nearly $40 billion. Notably, this amount surpasses the total foreign exchange reserves of the CBN. Mitigating a significant portion of this demand could have resulted in a considerably stronger naira today.” In response to these revelations, the CBN has announced plans to introduce a new foreign exchange operation mechanism aimed at regulating the Bureau de Change segment and combating currency hoarding. However, the roots of Nigeria’s forex crisis runs deeper than these immediate measures.

Some causes of the foreign exchange crisis in Nigeria.

Beyond the immediate focus on foreign education and medical tourism, several underlying factors contribute to Nigeria’s ongoing foreign exchange challenges. Understanding these root causes is crucial for devising effective long-term solutions to stabilize the currency and bolster the economy. One of them is the decline in oil revenue. Historically, Nigeria has been heavily reliant on oil exports as a primary source of revenue. Fluctuations in global oil prices directly impact the country’s foreign exchange earnings, leaving the economy vulnerable to external shocks. Diversifying revenue streams away from oil is imperative to reduce this vulnerability and enhance forex stability.

Also, persistent fiscal deficits and inadequate revenue mobilization efforts have strained the government’s finances, leading to increased borrowing and reliance on external financing. This puts pressure on foreign exchange reserves and undermines confidence in the currency. Nigeria’s economy is characterized by structural imbalances as well, including overdependence on imports for essential goods and services. The resultant trade deficit exacerbates the demand for foreign exchange, further weakening the currency. Of course, inconsistent policy interventions and regulatory uncertainties create uncertainty in the forex market, deterring foreign investors and exacerbating exchange rate volatility. Implementing transparent and predictable policies is essential to restore market confidence and attract much-needed investments.

Related Article: Reasons for the persisting forex instability

Finally, corruption and leakages also contribute to the situation. Corruption and leakages in the foreign exchange market exacerbate the scarcity of forex and hinder effective allocation of resources. Strengthening regulatory oversight and enforcing anti-corruption measures are crucial to improve market efficiency and enhance forex liquidity. Addressing these underlying challenges requires a comprehensive strategy encompassing fiscal reforms, economic diversification, prudent monetary policies, and enhanced governance. By tackling these root causes head-on, Nigeria can pave the way for sustained forex stability, economic growth, and prosperity for its citizens.

Related Link

Central Bank of Nigeria: Website

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Ask Nigeria
21 days ago

$39.6bn spent abroad caused forex crisis – CBN. Impact of foreign education and medical tourism as the roots of forex crisis. – Express your point of view.

20 days ago

The foreign exchange problem was created by $39.6 billion in spending overseas, according to CBN. Impact of overseas education and medical tourism as the roots of forex crises. If international education and medical tourism are the reasons given by the CBN for the FX issue, then the government is mostly to blame they cause all this issue of forex going abroad for medical purposes and group of parents sending their kids to study abroad.

20 days ago

Spending on overseas education and medical tourism: During the same time period, $11 billion was directed on overseas medical travel and $28.6 billion toward financing overseas education. We need to address this root of the forex issue since it has been identified as a major factor in the nation’s foreign exchange dilemma, which is expenditures.

Adeoye Adegoke
20 days ago

The impact of foreign education and medical tourism on Nigeria’s forex crisis is quite significant. When a large amount of money is spent abroad for these purposes, it puts pressure on the country’s foreign exchange reserves and contributes to the forex crisis.
Foreign education and medical tourism can be appealing due to the perceived quality and specialized services available abroad. However, it’s important to consider the long-term consequences of such practices. When individuals seek education or medical treatment abroad, they are essentially sending their money out of the country, which can strain the availability of foreign currency within Nigeria.
This forex crisis can have several negative effects on the economy. It can lead to a depreciation of the local currency, making imports more expensive and potentially causing inflation. It can also limit the government’s ability to provide essential services and invest in critical sectors, as the foreign exchange reserves are depleted.
To address this issue, it’s crucial to focus on improving the quality and accessibility of education and healthcare within Nigeria. By investing in these sectors and ensuring that they meet international standards, we can reduce the need for individuals to seek these services abroad. This would not only help retain foreign exchange within the country but also promote the growth of local industries and create employment opportunities.
Furthermore, promoting domestic tourism and encouraging Nigerians to explore the country for medical treatment or education can also contribute to mitigating the forex crisis. By developing world-class facilities and institutions within Nigeria, we can attract both local and international students and patients, boosting the economy and reducing the outflow of foreign exchange.

20 days ago

The Central Bank of Nigeria reports that spending $39.6 billion on foreign education and medical trips from 2010 to 2020 has worsened the naira’s decline. Governor Cardoso’s plan to regulate the forex market is crucial, but we must also address deeper issues like oil revenue decline, fiscal deficits, trade imbalances, policy inconsistencies, and corruption to restore stability.