CBN: Amid stability concerns, experts draw the lines for Cardoso

BY EMEKA EJERE

The appointment and subsequent confirmation of accomplished banker, Olayemi Cardoso, as the eleventh governor of the Central Bank of Nigeria (CBN), has continued to dominate discourse within the financial and economic space.

This is understandable as the quality of who becomes the CBN governor is very crucial for the stability and growth of a country’s economy. The reign of his predecessor, Godwin Emefiele, has been widely identified with chaotic, opaque, and politicised monetary policy system.

While some industry analysts see Cardoso as a man with unassailable capacity to manage the country’s monetary policies, others have their reservations about choosing someone with a commercial banking background rather than a professional with experience in central banking to lead the CBN.

However, both sides of the divide are clearly united by the fact that the former chairman of Citibank Nigeria is wearing the captain band at a time the CBN top job can be described as everything but attractive.

They are also in agreement about the imperative of deploying instant measures that will help strengthen the fragile trust of foreign investors in the Nigerian economy, with the expectation that it will put the brakes on the free fall of the naira against the dollar.

The incoming CBN governor and his team are being ushered in by a defiant foreign exchange crisis, double-digit interest rate, accelerating inflation, and unpaid intervention loans. Also calling for their immediate expert touch is Nigeria’s soaring sovereign debt currently estimated at N87 trillion (when the CBN’s Ways and Means advancement of about N23 trillion is factored in).

The new CBN management will also be battling low exports, shrinking food production, sub-optimal crude oil production, N2.7 trillion currency in circulation, rising debt service payments, crude swap deals and depleted foreign reserves.

Experts believe that to save the naira, tame inflation and rates, Cardoso should deliver on his promise to quickly clear the backlog of forex obligations and discontinue Emefiele’s unorthodox policies.

“We are aware that there are unsettled obligations by the central bank. Whether it is 4 billion (dollars), 5 billion, 7 billion, I don’t know,” the CBN governor said in response to questions from senators at his screening in Abuja.

“But definitely, the immediate priority will be to be able to verify the authenticity and the extent of what is owed… It would be naïve of us to expect that we will be making too much progress if we’re not able to handle that side of the foreign exchange market.”

The naira crossed the N1,000 to $1 bar penultimate week at the parallel forex market, deepening panic across the business community. On Wednesday, it settled at an average N987-N996/$1. With the official rate N778.6, the difference and therefore, scope for arbitrage is consequently over N200 per $1.

Nigeria weakened its currency by 40 percent barely a fortnight after President Bola Tinubu’s inauguration, allowing the hitherto multiple exchange rates to converge around the rate offered on the parallel market, one of the sweeping actions taken to rebuild investors’ confidence. But the move turned out to be counterproductive as the black market has since diverged from the parity achieved in the middle of June by about 60 percent.

Cardoso and his team are also expected to urgently initiate far-reaching monetary policy objectives that will reduce headline inflation rate, currently at 25.08per cent as at August. This was attributed to a spike in the price of petrol and the depreciation of the naira. Food inflation was 29.34 percent, an increase of 235 basis points when compared with the previous month’s levels.

The CBN started its monetary policy tightening cycle in May 2022, with its benchmark interest rate from 11.5 percent to 18.75 percent in July this year. The bank justified this, noting that the rising rate of headline inflation necessitated the hike in interest rates.

The International Monetary Fund (IMF) has advised the apex bank to maintain its monetary policy-tightening mood in order to cage inflation. However, different stakeholders have kicked against the constant tightening, calling for other ways of managing inflation.

Path to sanity

Professor of Capital Markets, Uche Uwaleke, wants the new CBN management to endeavour to halt present policy tightening stance of the apex bank by putting in place deliberate measures to engender a low interest rate regime that will facilitate access to capital by the nation’s SMEs.

“On the vexed issue of forex management, his plan to clear the backlog of forex would be a step in the right direction as it would go a long way in restoring the confidence of investors in the Nigerian economy”, Uwaleke said.

“I equally expect him to pay close attention to the supervision of Deposit Money Banks, in particular, as well as, ensure compliance with corporate governance code by regulated financial institutions”.

Setting agenda for new CBN helmsman on Friday, The Punch Editorial Board wrote: “Without compromising its autonomy, he needs to work with and harmonise monetary policies with the government’s fiscal policies to foster a more favourable macroeconomic environment that will stimulate productive activities, especially agriculture, manufacturing, and SMEs, and halt the naira’s free fall.

“Policies should be pursued to promote exports and diversify dollar supply sources. He needs to tame the banks and the BDCs and the influence peddlers making billions from illegal arbitrage.

“The CBN must be cleansed of corruption, inefficiency, and institutional weakness. There should be radical reforms to make it nimble, ICT-enabled, alert and ruthlessly efficient in enforcing the rules.”

Also, the Centre for the Promotion of Private Enterprise (CPPE) has set a 10-point agenda for the new CBN management. In a document shared with Business Hallmark, Director General of CPPE, Dr. Muda Yusuf, noted that the most urgent task is restoring confidence in the foreign exchange market.

Others, he said, are; deepening the financial system; efficiency of the financial system; capital requirements for banks; ways and means financing of fiscal deficit; naira redesign policy; concentration risk in banking sector; stakeholder engagement; corporate governance and tenure and cost of funds in the banking system.

Yusuf said: “There is a serious confidence crisis in the foreign exchange market fueling an unprecedented speculative onslaught on the naira.

The economy is grappling with severe adverse effects of depreciating exchange rate, soaring energy costs, ravaging inflationary pressures, huge backlog of foreign exchange obligations that need to be cleared and debt service obligations that need to be redeemed.”

On financing fiscal deficit through Ways and Means, he said it must be kept within statutory limits to avoid the damaging impacts of high-powered money on the macroeconomic environment.

Yusuf said the naira redesign policy should be suspended indefinitely. “It should not be a priority at this time. There was really no compelling argument to undertake the naira redesign in the first place. However, the momentum for the cashless economy should be sustained without resorting to the crude methodology of cash confiscation adopted by the previous dispensation in the CBN. The approach was very disruptive and inflicted unbearable hardships on businesses and the citizens”.

Former Vice-Chancellor, University of Uyo, Prof. Akpan Ekpo, an economist, who had been a board member and MPC member of the bank, says Mr. Cardoso and his team should focus on restoring the reputation of the institution; stick to monetary policy and exchange rate management and should stress managed float for the Nigerian currency. ‘’There is no convincing argument for floating the Naira, which is not a convertible currency’’, Ekpo said in a monitored interview.

Before the baton

A former chairman of Citibank Nigeria, Cardoso is a distinguished leader in the financial and development sectors with over 30 years’ experience in the private, public and not-for-profit organisations.

He has also sat on the boards of Nigerian subsidiaries of Texaco and Chevron and chaired the board of EFInA, a financial sector development organisation supported by the Bill and Melinda Gates foundation.

He was in government as Commissioner for Economic Planning and Budget for Lagos State, where he championed the financial reform, which led to the state’s development of independent tax revenue.

As a consultant and policy expert, he advised and collaborated with major international development organisations including the World Bank, Ford Foundation, UN Habitat, World Health Organisation and the Swedish Development Foundation.

He started his banking career with Citibank, where he eventually rose to the position of Vice President leaving to co-found Citizens International Bank, where he was an Executive Director for eight years.

Cardoso studied managerial and administrative studies at the Aston University, where he obtained a Bachelor of Science (B.Sc.) degree. He is the recipient of several awards including an honorary Doctorate in Business Administration from Aston University, his alma mater, and the Global Distinguished Alumni Award from Citi. He obtained a Masters in Public Administration from Harvard Kennedy School, where he was a Mason Fellow.