The President of the World Bank Group, David Malpass, has warned that Nigeria’s parallel exchange rate is harmful, as it worsens future debt service payments and increases the risk of debt distress.
Malpass said this in a blog post, titled: “Parallel Exchange Rates: The World Bank’s Approach to Helping People in Developing Countries”, published on Wednesday on the bank’s website.
According to Malpass, about 24 emerging and developing economies, including Nigeria, have an active parallel currency market.
The World Bank chief noted that parallel exchange rates are expensive and can drive corruption.
Malpass said, “The economics on parallel exchange rates is clear: they are expensive, highly distortionary for all market participants, are associated with higher inflation, impede private sector development and foreign investment, and lead to lower growth.
“They benefit the group that has access to foreign exchange at the subsidized rate, paid for by everyone else (which may include the World Bank Group and its stakeholders). Hence, there is also a strong correlation, if not causation, between the existence of parallel rates and corruption.”
Malpass also noted that little progress has been made in countries like Nigeria, Argentina and Ethiopia in addressing the issue.
He further warned that parallel exchange rate markets adversely affect the impact of the Bank’s projects while leading to more foreign debt, adding that the Bank has set some measures to discourage subsidised rate and lessen the effect of such rates on the bank’s operations.
President Bola Tinubu had on Monday affirmed that the CBN would aim at harmonising Nigeria’s multiple exchange rates.
