By Henry Boyo
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.
SAVE THE NAIRA! SAVE NIGERIANS!