By Ayo Yusuf
In a swift move to save Nigerian businesses from going under following the refusal of their foreign partners to honour letters of credit from Nigerian banks, the new Governor of the Central Bank of Nigeria, CBN, Olayemi Cardoso, has promised to clear the apex bank’s backlog of unsettled foreign exchange obligations soon.
Many Nigerian businesses were in danger of folding as foreign partners insisted on cash payments following the inability of local banks to redeem previous letters of credit due to the dollar shortage in the country.
Letters of credit are usually guarantees of payments that a local bank gives a foreign bank promising to pay for the specified goods or services within a certain period.
The new governor said, Tuesday, that in order to restore confidence in the nation’s financial institutions, the apex bank is determined to enhance transparency, fix corporate governance, and ensure confidence in the autonomy and integrity of the bank.
“We need to promptly find a way to take care of that. It would be naive for us to expect that we’ll be making too much progress if we’re not able to handle that side of the foreign exchange market,” he said.
The new CBN governor also said he would maintain price stability, revert to evidence-based monetary policies, and discontinue his predecessor’s unorthodox monetary policies to bolster the country’s currency.
Mr Cardoso’s screening took place as the nation grapples with falling economic indices with the naira nearing 1,000/$ at the parallel market.
According to Cardoso, the immediate plan to stabilise the naira will be for the apex bank to settle existing financial obligations and make “transparent rules.”
Describing how to address what he termed as an ‘operational issue’, he said, “Right now, we have a situation where we are aware that there are unsettled obligations by the CBN.
“Whether it is $4bn, $5bn or $7bn, I don’t know but definitely the immediate priority will be to verify the authenticity and extent of what is owed.
“Number two, apart from the operational issue, there is one that is system related that involves ensuring that we come up with rules that are open, transparent that any of the players in that area understands. We can’t expect foreign investors and portfolio investors to come; we can’t expect them if there is no open, transparent system that everyone understands.
“In setting up those guidelines one will carry the relevant stakeholders along and the comment was made earlier that one should be ready to engage everybody and hear views. Those two things, though they may seem simple, will go a long way to easing up the restrictions we are having on people (investors) that want to come in.”
The immediate past acting CBN Governor, Folashodun Shonubi, on September 6, 2023, said the apex bank had concluded negotiation on dollar debts with commercial banks, disclosing that all forex exchange backlogs would be cleared within one to two weeks.
However, TheNewDiplomat gathered that over two weeks after the CBN promised to clear the over $10bn foreign exchange debts owed Deposit Money Bank, the apex bank had yet to do so.
Also, the newly confirmed CBN governor said in order to tackle the country’s inflation, the bank will roll out evidence-based policies.
According to him, “When you look at the dimension of inflation, we will be doing evidence-based monetary policy. We shall not be making decisions based on a whim.
“We will significantly rebound the infrastructural demand with respect to ensuring that our data gathering capacity is enhanced so we can make decisions based on proper data.”
Nigeria’s inflation surged to 25.80 per cent in the month of August 2023, 1.72 percentage points higher than the 24.08 per cent recorded in the previous month.
The CBN started its monetary policy tightening cycle in May 2022, with its benchmark interest rate moving from 11.5 per cent to 18.75 per cent in July this year.
The bank justified this by noting that the rising rate of headline inflation necessitated the hike in interest rate.
However, the apex bank has been unable to curb the rising inflation.
Mr. Cardoso further stated that relatively, reliable studies have shown that in the past 10 to 15 years at least 50 percent of inflation has been as a result of money supply and deficit financing.
“This is a big problem at least it certainly has been over a period of time and it’s something we have to face frontally,” he noted.
The governor added that avoiding deficit financing would tackle money supply issues.
Reasserting CBN Independence
The new governor told senators during his screening that there was a need to restore the apex bank’s independence and credibility by refocusing on its core mandate and ensuring a culture of compliance.
His words: “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 the CBN to its core mandate, there is a need to pull the CBN back from direct development finance interventions into more limited advisory roles that support economic growth.”
As of October last year, about N9tn had been released as intervention funds by the apex bank.
The bank had said that about N3.7tn had been repaid by beneficiaries while over N5tn was not yet due for recovery.
On the matter of unhealthy bank charges, the renowned banker said that the team would review the situation and come up with the required position.
Still as part of efforts to ensure the apex bank’s independence, the newly confirmed governor promised that he and his team would not be hijacked by politicians as they discharge their duties.
Senate President Godswill Akpabio had asked Cardoso if he would be influenced and hijacked by politicians when he assumed office.
Responding, the CBN governor said, “It is important that we, who are considered for this position today, understand that this is a position of trust.
“With that comes a huge responsibility to meet up with that trust. I know that a lot of time and effort has gone into choosing the people who are standing here for nomination today.
“As far as I am concerned, under my leadership, we will not be hijacked by anybody. The idea is to ensure that we do what is right, when it is right, and how it is right. We’ve seen what the effect of not doing right has been, and we do not intend for that to be repeated.”
He added that his team and him would inculcate a culture of compliance into the apex bank by adhering strictly to the CBN Act 2007.
“I believe that the central bank under our watch will have no choice but to embrace a culture of compliance,” he said.
The Senate on Tuesday, not only confirmed Mr Cardoso, but also four deputy governors including Emem Nnana Usoro, Muhammad Sani Abdullahi Dattijo, Philip Ikeazor, and Bala Bello.
The new governor and his colleagues were grilled by lawmakers who also expressed worry over the dwindling state of the economy with a special focus on the Naira.
Senate President Akpabio, while addressing the Committee of the Whole, frowned at the involvement of the CBN in construction of classrooms, among others.
He emphasised the need for an apex bank that is focused on providing sound policy and monetary directions for the economy.
Senator Akpabio also regretted that the bank under the former board lost its focus and veered into politics “with money that belongs to Nigerians.”
“Nowhere in the world is a currency changed within one week. But the CBN changed the Naira in 11 days just to sabotage the elections, and because some politicians told him that you can contest for election after all you have money with you,” the Senate President added.
Senator Olalere Oyewumi raised the issue of concurrent use of old and new Naira notes, seeking clarity on the matter.
Mr. Cardoso addressed the Supreme Court’s ruling that old N1,000, N500, and N200 notes would cease to be legal tender by December 31, 2023.
Earlier, Senator Abdul’Aziz Yari questioned whether the CBN is legally empowered to generate profits.
He sought clarification on whether the CBN generated profits and if they were directed towards the Federal Government’s Consolidated Revenue Account.
Former Edo Governor, Senator Adams Oshiomole, advocated for government intervention to stabilize the Naira, emphasizing that market forces alone cannot achieve this.
He expressed concerns over high-interest rates hindering the growth of the manufacturing sector.
Senator Oshiomole urged innovative approaches to address economic challenges and questioned the uncritical adoption of Western economic models.
He expressed confidence in the new CBN leadership, anticipating their contribution to fulfilling the government’s campaign promises.
He urged a departure from conventional economic thinking and emphasized the need for tailored solutions to Nigeria’s unique challenges, rather than uncritically adopting international models.
Following the official confirmation of Cardoso and the new deputy governors by the Senate, the CBN is now expected to hold its monetary policy committee meeting.
The CBN had announced the postponement of its highly anticipated 293rd MPC meeting, originally scheduled for Monday and Tuesday, September 25 and 26, 2023.
