FILE - A trader changes dollars with naira at a currency exchange store in Lagos, Nigeria.
FILE - A trader changes dollars with naira at a currency exchange store in Lagos, Nigeria.

LAGOS - Nigerian lawmakers have adopted an official exchange rate of 305 naira per dollar for the 2017 budget but have asked the central bank to initiate measures to close the 40 percent spread with the black market, the deputy senate president said on Wednesday.

Members of the upper house of parliament said during a review of the budget on Wednesday that they were worried about the exchange rate differential, which they described as damaging to the economy and said had led to a loss of investor confidence.

"We are worried by the huge gap. The central bank needs to do something about it and stabilize the currency. We must find a way of bridging the gap and restore investor confidence," the deputy senate president, Ike Ekweremadu, read out in the house.

The naira's official rate, controlled by the government, has hovered just above 300 to the dollar since it was devalued in June. But the gap of 40 percent to the parallel market is discouraging investment from overseas and leaving Nigeria
starved of foreign currency.

By basing its budget on the official exchange rate, even though most individuals and businesses source dollars from the parallel market, the government is at risk of struggling to fund its economic plans.

"The pegging of the exchange rate at 305 naira to one dollar is not realistic, we have to allow the currency to float and attain a realistic exchange rate," said Ben Bruce, an opposition People's Democratic Party senator.

Echoing the senate's concerns, Vice President Yemi Osinbajo said on Tuesday Nigeria needed to close the gap "very soon," as Africa's largest economy grapples with inflation.

The official and black market naira foreign exchange rates will be "unified" this year, but there is no time frame for when it could happen, said Osinbajo.

Financial institutions, among others, have argued that Nigeria must allow its currency to float freely to solve its foreign exchange woes, a measure which has met opposition from President Muhammadu Buhari.

The naira now has multiple exchange rates, which have created inefficiency and opportunities for corruption, analysts at Exotix said in a note.

"The belated de-pegging of the currency in June 2016 failed to remove investor concerns over the conduct of economic policy and the 'free float' didn't happen," they said.

In an effort to stop up the foreign currency shortfall, Buhari's government has been in talks with financial institutions, including the World Bank, for loans.

But those efforts to secure funds have stalled because Nigeria has not submitted the required economic reform plans, according to one of the banks and sources close to the matter.