Given the deeply entrenched monetary and fiscal policy somersaults that have attended operations of the Central Bank of Nigeria (CBN), for which the Nigerian economy has been thrown into a tail spin, it is almost futile to expect anything good from the apex bank. Given the rash of contradictory policies in the wake of the drop in oil prices, and subsequent decline in forex reserves and pressure on the naira, it is also pointless to expect that CBN Governor, Godwin Emefiele can halt Nigeria’s descent into economic collapse. Emefiele has lost focus and shown poor judgment, while his job is too critical. His actions based on trial and error have been a parody of the seriousness and deep thinking that should guide policy recommendations and actions for an economy in crisis. It is therefore appropriate to call on President Buhari to sack him. The government should find another man for the job. Leaving Emefiele at the apex bank will be a betrayal of change and a huge disservice to Nigeria.
At his confirmation hearing, Emefiele promised to promote macroeconomic stability, reduce inflation and interest rates as well as ensure a strong exchange rate. He also pledged to resist devaluation and discourage dollarization. He assured the Senate that he would not spend any money in contravention of the law. Ironically, he has done just the opposite. Under his watch, the CBN has failed to align monetary policy with government’s fiscal policy, sending the economy into free-fall. The situation has passed crisis point and Nigerians are asking: who is in charge of the economy? Revelations from the unfolding arms scandal, that Emefiele played cannon fodder, by authorizing the payment of billions in hard cash to the NSA has also undermined public confidence in his ability to lead the apex bank. He must go.
Despite the distraction of blaming the situation on the global glut in commodity prices including oil, Emefiele’s efforts and stabilizing the economy, especially the value of the naira has been pedestrian. CBN policy prescriptions have been riddled with ambiguities and buffeted by macroeconomic instability, high inflation, high interest rate, sliding naira exchange rate, comatose real sector, high unemployment and rising poverty. It is therefore, not oil curse but the CBN curse of excessive fiscal deficits substituted for oil earnings that is the bane of Nigeria’s economic under-performance. Emefiele just doesn’t get it.
It is a telling sign of cluelessness that a man invested with exclusive monetary responsibility, would by his actions and inactions, plunge Nigeria’s already charged polity into chaos. Ostensibly to prevent forex abuse, the CBN banned businesses from accessing hard currency to import 41 items, including Indian incense, plastic and rubber products, soap and even private jets. This came after the apex bank ordered commercial banks to reduce the amount Nigerians could spend on credit and debit cards. Then last December, the CBN ordered commercial banks to stop customers from using their debit and credit cards abroad, leaving millions of Nigerians stranded. This was sheer insanity and surely, nothing like this happens in any country worthy of respect.
The CBN argued that it was acting in defence of the naira. But this is incongruous. Firstly, Central banks do not and should not unilaterally set exchange rates. Secondly, the dollar amounts held by CBN are part of Federation Account (FA) allocations, which it inappropriately acquired. It is wrong to treat such acquisitions as external reserves and much worse as CBN’s external reserves. FA dollar allocations constitute a large proportion of the economy’s total forex supply and the CBN action distorted the forex supply and demand relationship with the result that dollars flow unidirectionally from the apex bank to the forex market. That is perverse. Ordinarily, the converse holds.
To wit, the CBN still holds FA dollar accruals as its external reserves and in their place disburse to FA beneficiaries freshly printed naira amounts purported to be their equivalent, which they are not. This is the lie Nigeria lives and which must not continue. It amounts to substituted deficit financing that has no redeeming value to the economy. The resulting unintended and ruinous excessive fiscal deficits instigates the odd reality of government borrowing back its own funds from commercial banks and also crowds out the real sector from available credit.
The true measure of CBN’s pig-headedness is Emefiele’s doggedness in staying the course even when CBN policy interventions contradict the prescriptions of economic theory for dealing with liquidity management and price and exchange rate stability. Consider exchange rate policy. Given the high percentage (80%), of dollar receipts in the FA, the choice of the managed float regime has been officially upheld over the years. It is implicit in the medium term expenditure framework and the annual Federal Appropriation Act. But disappointingly, CBN undermined the managed float regime. The results have induced a high proportion of non-performing bank loans, overhanging banking sector distress, which has saddled AMCON with an expanding portfolio of toxic assets currently put at over N6 trillion and a low ratio of bank credit to the economy as a percentage of GDP of about 30%.
Pandering to macroeconomic revisionism, Emefiele continues to draw a ridiculous correlation between huge CBN deficit expenditure and a strong naira. In fact, he should have realized by now that excess naira supply puts downward pressure on the naira, and a weaker naira increases inflationary pressure and high lending rates which escalate domestic production costs and constant depreciation of the naira. Can Emefiele tell Nigerians why credit from banks should be so expensive in a money market with excess naira liquidity? Surely, no commodity should be more expensive when supply exceeds demand.
Emefiele has done nothing but make money for his banker friends to the detriment of Nigerians, who continue to subsidize commercial banks through Open Market Operations (OMO). The OMO involves 91 and 180-day treasury bills (TBs), which the CBN issues to mop up excess liquidity, created by illegal substituted deficit financing. The TBs are then rolled over and restructured into treasury bonds which make up over 90% of the ever-rising domestic debt. Proceeds from the TBs are merely sterilized and non-investable. Their service cost (over N1 trillion in 2015) represents unearned income to commercial banks. CBN’s long-running faulty fiscal and monetary policies are responsible for the high level of bank non-performing loans and recurring banking sector distress. In fact, in order to mitigate bank failures, the CBN has been subsidizing banks with treasury bills at unduly high interest rates. Practically, all commercial banks will collapse in the absence of this fake national domestic debt.
When Emefiele took over as CBN Governor, he had his job well cut out. But he has shown that he lacks the strength of character to break from past failures and totally commit himself to actualizing the CBN mandate. He has conducted himself not as a banker who provides economic and financial advice to the federal government; but as a hireling of commercial banking interests (to which favors have to be repaid and subservience is owed). He seems to be a fish out of water who, burdened by inferiority complex, borne out of personal inadequacies, takes dictation from political godfathers. It is self-indictment for the CBN governor to perch upon rooftops to blame others for the poor state of the economy. That betrays a lack of full grasp of the onerous responsibilities of the apex bank.
Without equivocation, Emefiele best advertises everything that is wrong with monetary policy in Nigeria. He has failed in guiding the apex bank to achieve its primary aim of ensuring price and monetary stability. Not that he is unaware of the problems; the fact of the matter is that he is just at a loss for solutions. Therefore, he should either resign or be sacked. Mr. President, Nigeria is too fragile and needs not another commotion. In the name of God and Allah, save the country further embarrassment; sack the CBN governor; and please, sack him now!
