CBN: Cutting wastes, tweaking policies to reset economy

The Nigerian economy is facing existential challenges and that is one sour reality that cannot be sweetened by political correctness or monetary and fiscal policy propaganda.

Accordingly, experts have tasked the managers of the economy, especially the Central Bank of Nigeria (CBN), to try every trick in the book to get the country out of the storm back to tranquil waters.

Multinationals in various sectors are exiting in droves in what industry watchers call a dangerous exodus.

They insist that unless audacious steps are taken to fix the ailing Nigerian economy and halt the exodus of multinational firms, the country, literally on ventilators, may eventually collapse.

However, the CBN Governor, Dr Yemi Cardoso, said the apex bank would not rest on its oars until the economy roars back to life and eventually soars.

On assumption of duties in September last year, Cardoso was greeted by a troubled economy. The naira was tumbling (and still tumbling), export was low, Ways and Means advancement was terribly abused and epitomized the greatest level of profligacy in modern economic scenarios.

Other challenges were; terrorism, decrepit infrastructure, unbridled corruption, war in Ukraine, hyper-inflation and ballooning sovereign debt inching to N100 trillion (if the national assembly approves the fresh $8.699 billion and €100 million sought by President Tinubu).

Senate President, Godswil Akpabio and the Speaker, House of Representatives, Tajudeen Abbas, have joined many economic experts to express deep worries over the towering sovereign debt that is threatening to drown the country if productivity is not handsomely improved.

However, as foreign investors become restive over their trapped funds, the CBN recently settled part of the foreign exchange forwards worth $2 billion.

The apex bank also disbursed $61.64 million to foreign airlines through various banks, in a strategic effort towards creating a conducive business environment, swelling investors’ confidence and fulfilling its commitment to eliminate the backlog of pending matured foreign exchange obligations in Deposit Money Banks (DMBs).

Spokesperson of the apex bank, Mrs Sidi Ali Hakama, said the CBN was relentlessly working towards decreasing its remaining liability to the airlines and other stakeholders.

“This underscores the Bank’s commitment to the resolution of pending obligations and a functional foreign exchange market.

“These payments signify the CBN’s ongoing efforts to settle all remaining valid forward transactions, with the aim of alleviating the current pressure on the country’s exchange rate.

“It is anticipated that this initiative by the CBN should provide a considerable boost to the naira against other major world currencies and further increase investor confidence in the Nigeria economy”, she explained.

On steps taken to clean up the financial ecosystem, Hakama said that the apex bank recently commissioned an independent forensic review of the outstanding FX backlog by a reputable firm.

She, however, noted that the review revealed grave infractions, gross abuse, and significant non-compliance with market regulations, assuring that appropriate sanctions would be enforced in collaboration with relevant agencies.

Mrs. Sidi Ali stressed the CBN’s resolve to sanitize the financial services sector and foster trust among all market participants, as well as internal and external stakeholders in the Nigerian economy. Nevertheless, she said the CBN will continue to settle the legitimate foreign exchange backlog as it has consistently been doing in the last three months.

Nonetheless, the CBN Governor, Dr Yemi Cardoso, said he would not be intimidated by the hurdles stacked on his path he was already plugging leakages, managing the Ways and Means advancement abuse, cleaning up the foreign exchange market among others.

The Director General, Centre for the Promotion of Private Enterprise (CPPE), Dr Muda Yusuf, said the Ways and Means financing of government operations had done significant damage to the economy over the years. 

“This resulted largely from the flagrant violation of the law guiding the use of this funding window. It hurts the economy because it accelerates naira liquidity growth without any corresponding growth in output.  “It has, therefore, been a major driver of inflation in the economy. The effect  on macroeconomic stability is very profound. 

“The CBN Act prescribes a limit of 5% of actual revenue of the previous year in the use of the financing window to support the government. But under the previous administration, the percentage was as high as 50% and even more.  The trend persisted for some years under the previous administration and it adversely affected businesses in very profound ways. 

“The Ways and Means grew astronomically from N2.4 trillion in May 2015 to  N30 trillion in May 2023. And this mode of financing is highly inflationary. 

“The good news is that as at November 2023, Ways and Means financing had dropped to N5.2 trillion.  This is something to be commended.  It is hoped that the incumbent administration will live up to its word of keeping within the limits of the law with respect to ways and means financing.

“The benefits of such compliance is the positive impact on macroeconomic outcomes.

It is difficult to decouple federal government completely from the use of ways and means.  What is paramount is compliance with the CBN act”, Yusuf explained.

At the 58th Annual Bankers Dinner in Lagos last year, Cardoso said strategic reforms were underway to revive the economy and ultimately achieve the projected growth.

He said the CBN was currently undergoing internal realignments to achieve regulatory fortification needed to perform its oversight functions more effectively.Ezoic

He said the CBN has approved the adoption of an explicit inflation-targeting framework to enhance the effectiveness of the monetary policy.

“The details and requirements for this framework are currently being finalized alongside the fiscal authorities”, he said.

According to him, the apex bank, in the past, burnt its fingers by straying from its core mandate of price stability and groping into unfamiliar terrains.

Cardoso said the greatest gaffe was embarking on uncoordinated intervention programmes which gulped over N10 trillion with minimal impact on the economy.

He added that the interventions were unorthodox deployment of monetary policy tools without clarity between fiscal and monetary policies.

He identified those areas of intervention the CBN went into with limited expertise to include; agriculture, aviation, power, youth development among others, which distracted it from achieving its core objectives.

He said the bank would junk such a template since it did not yield the desired results.

“Instead of direct interventions, we will collaborate with stakeholders and formulate policies that create an enabling environment for sustained economic growth and development. Our catalytic role will support increased investment and private sector participation in the economy, improve access to finance for MSMEs, and enhance financial services for the underbanked. This includes promoting specialized institutions and financial products to support emerging sectors, developing regulatory frameworks to unlock dormant capital in land and property holdings, facilitating accelerated access to consumer credit, and expanding financial inclusion to reach the masses.

“We will work with experts to develop derisking instruments that encourage private sector investment in key industry verticals such as housing, textiles and clothing, food supply chain, healthcare, and educational supplies, which have high potential for local inputs and value retention. The CBN will leverage its convening power to engage multilateral and international stakeholders in government and private sector initiatives” he explained.

To reset the monetary policy space, Cardoso said deposit money banks in Nigeria must raise their capital base to build the financial capacity to service the demands of a $1 trillion economy.

The CBN Governor and the Finance Minister, Mr Wale Edun, said they would pull all necessary levers to reset the country and attain a $1 trillion economy.

Cardoso’s roadmap seeks to supervise banks recapitalisation to fortify them to service the demands of a $1 trillion economy.


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