By Isah Aliyu Chiroma
In an effort by President Tinubu to clean up the CBN and its monetary policies, the president deemed it was necessary to bring in new leadership to the affairs of the Central Bank of Nigeria. The nomination of Dr. Olayemi Michael Cardoso by President Bola Tinubu signifies the first bold steps to reform the Central Bank of Nigeria, and reposition as as the largest monetary watchdog on the Nigeria economic space and Africa at large. I am glad that Dr Cardoso was a member of the National Economy Sub-committee, who came up with the Policy Advisory Council Report in May 2023. I think it is a wise decision taking by the president to bring the new governor on board, to execute those action plans.
The new governor has assumed office at a critical time which he is fully awar, when the CBN is facing challenges and needs urgent actions to have a reform in the sector. To achieve this, the president has great expectation from the governor likewise the citizens, most especial in a time like this, when the country is facing a serious challenge across the economic sectors. let’s discuss the role of a refocused Central Bank in supporting the economic agenda of the President Tinubu’s Administration.
The economic policy proposals of the Administration identify a set of fiscal reforms and growth targets that will achieve $1.0 TN GDP within 8 years. In reviewing selected BRICS and MINT countries, with large population and similar developmental characteristics as Nigeria, it is interesting to identify macro-economic indices that point to Nigeria’s economic trajectory, given faithful implementation of the proposed economic reforms. In economies bigger than $1.0TN, these indicators include moderate inflation, sizable foreign reserves, and capacity to quickly rebound from cyclical economic downturn. A refocused CBN will better serve the country through monetary policy interventions and advisory roles that sustain implementation of the Administration’s fiscal proposals.
The CBN has faced a lot of challenges over the years, which has contributed greatly to the current situation of the institution. Prominent among those challenges are; Failure in corporate governance in CBN, diminished institutional autonomy, need to refocus CBN back to core functions, unorthodox use of Ways and Means spending, Backlog of FX demand, Lack of clarity in fiscal and monetary relationships, Inflation and price stability, Access to FX market and FX price discovery, Current Financial System Stability. Then, all those challenges come with a critical question that needs to be answered.
How will issues of governance be addressed is one of the first key questions to address. Looking at the leadership of this institution, the Governor with four deputy governors might make the work to appear more easily. But in a situation like this, where the Governor and the deputies have never worked together, it might be a challenge before they got to understand themselves and work together as a team. But a leader with good leadership ways will know the strategic steps he will take to address too he will lead his administration.
On the other hand, is Diminished institutional autonomy. How can public and financial systems’ stakeholder confidence be restored in the autonomy and integrity of CBN. This is a big challenge as no one would take a risk if he is not certain or confident enough on what he is going into, even though sometimes we need to take risk, but we need to understand the risk we are taking and the direction we are driving towards.
The Governor also need to refocus CBN back to its core functions. What needs to be in place to revert to evidence-based Monetary policies? To address this, we need to Model the potential impact of a harmonized exchange rate regime on the economy and quantify the amount of foreign reserves required to adequately support the policy, based on: Backlog of unmet FX demand and associated obligations; Estimate of future FX demand for the year; and An additional contingency reserve, Discontinuation of unorthodox Monetary policies and Foreign Currency management.
Transition to a Transparent and Unified Foreign Exchange Rate System; this includes the announcement of readiness to address multiple exchange rates and reduce the gap between the official and parallel market rates, Review the CBN balance sheet and ascertain the true position of Nigeria’s external reserves, Aggressively grow FX supply & build external reserves, including securing funding support from the from the Multilateral Agencies and DFIs at concessionary rates, remove all FX intermediation windows and allow the banks as primary dealers to supply the FX market through a willing-buyer-willing-seller model.
On the other side is the Reform CBN’s Operating Model, which includes; exploring opportunities to strengthen the CBN governance structure and refine its operating model to enable it to operate efficiently and reduce its costs, Review, rationalize and transfer the quasi-fiscal operations of the CBN that are incompatible with core monetary policy management. Specifically, amend the CBN Act to substantially curtail the CBN in performing key functions.
There are some advisory roles the CBN, which much has been made of past CBN forays into development financing, such that the lines between monetary policy and fiscal intervention have become blurred. In refocusing CBN to its core mandates, there is need to pull the CBN back from direct development finance interventions into more limited advisory roles that support economic growth. These advisory roles could include; Acting as a catalyst in propagation of specialized institutions and financial products that support emerging sectors of the economy, Facilitate new regulatory frameworks to unlock dormant capital in land and property holdings, accelerate access to consumer credit and expand financial inclusion to the masses, De-risking instrumentation to increase private sector investment in housing, textiles and clothing, food supply chain, healthcare, and educational supplies.
These verticals have huge demand patterns, with potential for high local inputs and value retention, and can be basis for rapid industrialization, Exercise CBN’s convening power to bring key multilateral and international stakeholder participation in government and private sector initiatives.
We should have it at the back of our minds that CBN at the current economic challenges, the changes we want to see will take time. The problems are large and complex. However, with focused leadership and sustained reforms, it is expected that over time the country will witness open economic spaces, attract new investments, create employment. To the new governor and his deputies, the challenge is up to them with great expectations, we look forward to more impressive fiscal policies.
