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.
According to Malpass, ‘Parallel Exchange Rates: The World Bank’s Approach to Helping People in Developing Countries’, published on Wednesday on the bank’s website.
He said about 24 emerging and developing economies, including Nigeria, have an active parallel currency market.
He added that “In at least 14 of them, the exchange rate premium the difference between the official and the parallel rate is a material problem, exceeding 10 per cent.”
In the blog post, it was disclosed that Nigeria has an exchange rate premium of 61.7% as of March 2023.
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.
He also noted that little progress has been made in countries like Nigeria, Argentina and Ethiopia in addressing the issue.
The World Bank Chief further warned that parallel exchange rate markets adversely affect the impact of the bank’s projects while leading to more foreign debt.
He added that the bank has set some measures to discourage subsidized rate and lessen the effect of such rates on the bank’s operations.