IMF Africa Director, Mrs. Atoinette Sayeh recently noted at a press
conference at a World Bank event in Lima, Peru, that “…those measures
introduced by CBN to restrict demand and limit access to official
foreign exchange for certain imports are quite detrimental to economic
activities and invariably led to a lot of unhappiness in the private
sector”.
Consequently, Sayeh, apparently concluded that “these measures were
neither sustainable or advisable, and therefore hoped “that there will
be an opportunity to review forex restrictions and permit the Exchange
rate to continue to adjust”, because, according to her “the restrictions
are “already making things harder for the average person to buy milk or
to buy milk at an affordable price”.
Evidently, there was no mention of under nourished babies or
government’s insensitivity to the plight of the average Nigerian in
Sayeh’s comments, but it is difficult to deny the intended mental
association!
Incidentally, the IMF’s demand for Naira devaluation has also been
echoed from various strongholds and media organs of international
investment capital and speculative portfolios; notably, ‘The Economist’s
commentary titled ‘Toothpick Alert’, was a bland and disdainful parody
of CBN’s exclusion of 41 imported items from access to cheaper official
forex sales.
Similarly, earlier this year, the International banking stalwart, JP
Morgan also gave notice of its decision to delist Nigeria’s government
bonds from its widely subscribed index, unless the Naira was devalued,
and CBN also increased liberal dollar supply to the forex market,
presumably, so that foreign portfolio investors, (i.e. those without
factories or productive enterprises) particularly can take out their
speculative cash flows at short notice, if necessary.
Evidently, further Naira devaluation would also make it much cheaper
for such footloose portfolio investors to acquire both public and
private equity in Nigeria for less dollar values. Ultimately, therefore,
if Naira depreciation persists, more Nigerian equity prices will fall
in value below US$0.10(Ten Cents); expectedly, before that happens, the
much sought after foreign investors would have long spoken with both
feet.
The above awkward realities, notwithstanding, last week, no less a
person than the suspended former CBN Governor, Lamido Sanusi, who is
now, the Emir of Kano, joined advocates of Naira devaluation, when he
advised, that “the country cannot continue to live in denial on the
Naira” and therefore called for Naira devaluation as well as the removal
of fuel subsidy.
According to Sanusi, “It is wrong to continue to pretend that you can
keep the Naira at a certain level, when the price of oil is falling,
without depleting your reserves. You have to make a choice” he advised.
Sanusi warned that CBN’s policy was depriving key industries of imports
and therefore suggested that “if we have to make a choice between
economic growth and devaluation”, his recommendation would be that “we
protect growth”.
However, His Highness is clearly in denial that it will be an
impossible challenge to protect growth if the Naira slide subsists
unchecked overtime.
However, the ex CBN Governor, correctly recognizes that CBN has lost
control of its core mandate for price stability as, “inflation is
already upon us”, according to him; however, Sanusi, inexplicably
suggests that “it is time to loosen monetary policy” to counter the
subsisting oppressive, and irrepressible excess money supply that is
primarily responsible for rising inflation and the diminishing
purchasing value of all incomes, particularly the incomes of millions of
Nigerians who still earn below $2/day.
Sadly, our parlous economy, is today, probably the product of the
application of such a misguided problem solving mindset, which has
expectedly failed to favorably resolve our challenges with inflation,
interest and Naira exchange rates. In addition to devaluation, His
Highness, warned that unless we loosen monetary policy to help stimulate
the economy with cheaper funds, and “lower CBN’s key interest rate from
a record high of 13%, we would compound an exchange rate crisis for
business with high borrowing costs and declining demand”.
The essence of Sanusi’s recommendation is that if CBN reduces its key
interest rate, commercial banks would follow suit and lower their rates
to possibly below 20% from the average of 25% currently available to
the real sector. Expectedly, accessibility to cheaper funds should
stimulate consumer demand and also reduce cost of loans across the
board.
Instructively, however, unless the existing burden of systemic excess
money supply is resolved, it will be reckless to reduce CBN’s monetary
policy rate to best practice level below 5% across board to induce
single digit cost of funds that would jumpstart economy revival.
However, it will be clearly absurd and foolhardy to introduce
policies that provide cheaper funds to stimulate consumer demand when
surplus cash is already a disenabling abiding economic burden. This
would be akin to pouring petrol into the already raging fire of
spiraling inflation.
Ultimately, the N1,000 note which is currently less than $5 may
become worth less than $1, if money supply remains untamed, while fuel
price, even with local production, will more than quadruple with its own
distortional inflationary consequences!
Evidently, our presently disenabling inflation rate is fueled by a
subsisting burden of systemic excess money which has forcibly predicated
CBN’s need to remove over N3Tn from the burdensome systemic liquidity
surplus between September-December with treasury debts.
Not surprisingly, when he was CBN Governor, Sanusi had similarly
defended this same distortional process that constrains government to
pay double digit interest rates for funds which will simply be
sequestered as idle funds, notwithstanding the insistent cry of the real
sector for access to cheaper funds.
Advocates for a weaker Naira like the Emir, are always eager to
explain that Naira devaluation is inevitable since the fall in crude oil
prices has depleted CBN’s self styled “own reserves”. These compulsive
Naira bashers, however, always become unsettled when asked why Naira did
not appreciate from N153 to below N100=$1, for example, when CBN
reserves exceeded $55bn, with the controversial Excess Crude Account
also in excess of $8bn.
Furthermore, devaluation advocates cannot also explain why Naira
exchanged consistently for N80=$1 between 1995-98 despite CBN’s
relatively paltry reserves of just over $4bn and barely 4 months imports
cover.
Conversely, CBN’s reserves, presently average about $30bn with
certainly longer real imports cover than was possible prior to
Obasanjo’s administration, when the Naira exchanged below N100 = $1,
yet, we are inexplicably presently confronted with intense pressure for
further Naira devaluation.
Poverty will clearly deepen nationwide with serious social
consequences if our choice strategy is to rescue our economy with
further Naira devaluation and removal of fuel subsidy as recommended by
the IMF and likeminded experts like Sanusi.
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