Olayemi Cardoso, who was confirmed Tuesday by the Senate as governor of the Central Bank of Nigeria (CBN), alongside his deputies, has proposed to reset the apex bank, as the naira fell to an all-time low of 1,000 per dollar on the parallel market.
Nigeria’s currency has remained under pressure following increased demand for dollars amid dollar shortage occasioned by low inflows from oil receipt and foreign capital.
The naira has lost 35.50 percent of its value against the dollar, falling from 738/$ at the beginning of the year on the parallel market.
Despite the exchange rate unification in June, foreign exchange inflows into Nigeria are lagging. On the other hand, the demand for foreign currency remains high, thereby creating pressure on the exchange rate. In addition, limited access to FX in the official market are incentivising players to purchase FX in the black market.
Cardoso said his immediate priority would be to work out ways to aggressively offset huge FX obligations as part of measures to attack the current naira freefall, which has become a huge burden for the economy.
…to pull back from aggressive development finance
The new CBN governor promised to pull back from aggressive development finance, ensure a culture of transparency, compliance and collaboration and to embark on zero tolerance for breach of CBN Act.
“We will also look at the need to refocus CBN back to its core functions,” he said, stressing the need to reverse to evidence-based monetary policies and emplace an open, transparent, ruled-based system.
During the screening at the National Assembly, Cardoso outlined immediate or short-term measures towards addressing naira free-fall and other economic challenges.
He said: “We do need to have an exchange rate that is stable for a country that we all dream of. And quite frankly, there are short and medium-term measures, but I would say something about the short-term measures because that really is what bothers most people today.
“Understandably, the medium-term measures have to do with balance of payments on time, like the sorts of things that are being done already, with respect to ensuring that you’re getting more petroleum resources and diversifying the economic base of the country that I believe will continue by the present administration. And of course they take time.”
According to him, there are two very important issues that he and his deputies would have to address.
He said: “Number one is that of what I would term an operational issue. Right now we have this situation where we all know that we can argue about the numbers, but we are aware that the central bank has some unsettled obligations, whether it’s $4 billion, $5 billion, $7 billion, I don’t know.
“But definitely the immediate priority will be to be able to verify the authenticity of what is on ground and then of course, once we do that, we need to promptly find a way to take care of that. It will be naive for us to expect that we’ll be making too much progress if we’re not able to handle that challenge of foreign exchange.”
…to ensure transparency, compliance and collaboration
Cardoso said the central bank would ensure that rules are open and transparent to attract serious foreign investors.
He said: “We can also expect that those players who generally have an impact on your markets will not do so if you do not have an open, transparent system that everybody understands – one day, it is one way and the next day you review without any notice in setting up those guidelines.
“We will obviously carry relevant stakeholders along and to engage people and to hear views. And that will obviously be one of the major objectives to be able to get stakeholders together, understand where things are, probably very quickly come up with a strategy and a game plan that is well known to each other and to everybody.”
Cardoso said the implementation of those measures will go a long way to “tackle some of the issues we’re having right now in terms of people wanting to come in”.
“These short term measures and no matter what, I know that the impact will be such that we will be able to have investors coming into the market and confidence will come back in,” he added.
…says zero tolerance for breach of CBN Act key
Cardoso said under his watch, the central bank will embrace a culture of compliance, which extends to aligning with provisions in the CBN Act.
He told lawmakers: “We will have zero tolerance for abuse of compliance. That is a cultural shift, a change in mindset, but we will definitely make sure this happens. We are clear as to what the Act says; we are clear as to how we need to visit the House and share the things we are doing.
“We will do so because now that we propose to have a reset in the central bank, we are open and we are appealing also to the members of this hallowed chambers to work with us to ensure that every six months, from what I gather, there has to be discussions with the Senate. Whatever the 2007 Act says, we need to comply with. I personally believe that the Act is a strong and robust document. I feel what has been lacking has been the issue of implementation and compliance.”
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Nigeria’s real GDP growth of 2.5 percent for the second quarter 2023 remained weak and was driven by the non-oil sector, according to a new report by the FSDH Research. “In the second quarter of 2023, 11 sectors experienced a higher output relative to the first quarter. Crude oil theft continues to weigh on oil output and growth of the mining & quarrying sector.”
The country’s external reserves have trended downwards as the CBN continued its intervention in the Investors’ and Exporters’ (I&E) FX window.
According to the report, the pressure on external reserves is largely as a result of high demand for foreign currency to meet goods imports and service payments, limited investment inflows due to weak confidence, and limited inflows from crude oil sales due to oil theft.
“With the nomination of Yemi Cardoso as the new CBN Governor, investors and other stakeholders will look forward to how the CBN will be managed and repositioned to achieve key goals of price stability, exchange rate and financial stability,” analysts at FSDH Research said.
Key areas of interest will include the CBN governor’s views towards interest rate management, exchange rate management, cryptocurrency, the true position of the reserves and the apex bank’s role in financing government (ways and means advances) and development financing, according to them.
“We expect to see a pragmatic and engaging CBN Governor who will work to win the confidence of investors and other stakeholders,” the analysts added.