Nigeria lost N6.2trn to rigid FX regime in 2022 – Cardoso

In 2022, Nigeria missed out on a potential N6.2 trillion due to its less flexible foreign exchange (FX) regime —a loss that surpasses the N4.5 trillion spent on fuel subsidies during the same period.

This revelation was made by Olayemi Cardoso, governor of the Central Bank of Nigeria (CBN), during the 2024 Bankers’ Night organised by the Chartered Institute of Bankers of Nigeria (CIBN) in Lagos on Friday.

“These funds could have significantly contributed to critical investments in education, healthcare, and infrastructure development,” Cardoso said, underscoring the importance of reforms in the FX market.

Reforms to Unify Exchange Rates

Cardoso highlighted the CBN’s recent efforts to address inefficiencies in Nigeria’s FX market by unifying the country’s multiple exchange rates. This reform, he noted, has eliminated market distortions and restored transparency, creating a more predictable environment for businesses.

“Over the past year, we have undertaken critical reforms to unify Nigeria’s exchange rate, eliminating distortions and restoring transparency. This unification has enabled us to clear outstanding foreign exchange obligations, giving businesses—ranging from manufacturers to airlines—the confidence to plan and invest in the future,” Cardoso explained.

To further enhance the FX market’s efficiency, the CBN is introducing an electronic FX matching system, a platform proven effective in other markets, he said.

Improved Market Performance

The impact of these reforms is already evident in key indicators. According to Cardoso, the average daily turnover in the Nigerian Autonomous Foreign Exchange Market increased by 226 percent in the first half of 2024 compared to the same period in 2023. Foreign portfolio inflows also surged by over 72 percent during this period, and foreign exchange reserves climbed from $32 billion in May 2023 to over $40 billion —marking the highest level in nearly three years.

“These results reflect improved confidence in the reforms we have embarked on. Our foreign exchange reserves now represent the equivalent of eight months’ import cover, a significant achievement,” he said.

The market has also facilitated over $9 billion in capital outflows in the past year, enabling investors to repatriate capital and dividends without delays. Additionally, the country recorded a $6 billion current account surplus in the first half of 2024, driven by increased domestic refining capacity, a shift towards non-oil exports, and higher remittance inflows.

Addressing Inflation and Fiscal Imbalances

Cardoso acknowledged the pressing challenges Nigeria faced when he assumed office in October 2023, including surging inflation and a stagnant economy. Inflation had reached 27 percent, driven by excessive money supply growth, while GDP growth had stagnated at 1.8 percent over the past eight years.

“Inflation creates uncertainty for households and businesses, acting as a silent tax by eroding purchasing power and driving up living costs,” Cardoso noted.

To tackle inflation, the CBN raised the Monetary Policy Rate by 875 basis points to 27.5 percent in 2024. According to the governor, this decisive action was necessary to contain inflation and restore economic stability.

The fiscal crisis was another major challenge, with deficit financing through the CBN’s Ways and Means advances reaching N22.7 trillion by 2023—equivalent to almost 11 percent of GDP. Quasi-fiscal interventions totaling over N10 trillion further strained monetary stability and undermined market confidence.

“These practices shifted focus away from our primary responsibility—maintaining price stability. They compromised transparency by bypassing essential oversight mechanisms and contributed to inflationary pressures and market distortions,” Cardoso explained.

Commitment to Fiscal Discipline

Under Cardoso’s leadership, the CBN has taken decisive steps to end deficit financing through its Ways and Means advances, reinforcing its commitment to fiscal discipline. “We have ended years of fiscal deficits financed through CBN’s Ways and Means advances, promoting fiscal discipline and strengthening our economic buffers,” he said.

Looking forward, Cardoso reaffirmed the CBN’s focus on rebuilding Nigeria’s economic resilience through targeted reforms, including prioritizing domestic refining capacity, promoting non-oil exports, and advancing technological innovations in the financial sector.

“Our efforts are not just about stabilizing the economy; they are about creating a foundation for sustainable growth that benefits all Nigerians,” he said.

The CBN’s reforms have so far garnered positive feedback from industry stakeholders, with many expressing optimism about Nigeria’s economic trajectory under the new policy direction.