Olayemi Cardoso, the new Governor of the Central Bank of Nigeria, disclosed on Tuesday during the screening session of members of the Senate how he will prioritise clearing the apex bank’s backlog of unsettled foreign exchange obligations in the near term.
Cardoso promises 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 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 naira currency.
Cardoso’s screening as the nation grapples with falling economic indices with the naira nearing 1,000/$ at the parallel market.
The official market closed with the naira-to-dollar exchange rate settling at N755.08/$1 on Tuesday, according to the foreign exchange data released by the FMDQ Exchange
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, it was earlier reported 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 to tackle the country’s inflation, the CBN would roll out evidence-based policies.
He said, “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 from 11.5 per cent to 18.75 per cent in July this year.
The bank justified this, 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.
Cardoso further stated that relatively, reliable studies have shown that in the past 10 to 15 years at least 50 per cent 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.
He said that the CBN would ensure that the issue of deficit financing would not be a problem for the country.
Cardoso added that avoiding deficit financing would tackle money supply issues.
Intervention suspension
Cardoso during his screening emphasised the need to restore the apex bank’s independence and credibility by refocusing on its core mandate and ensuring a culture of compliance.
“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.
For bank unhealthy bank charges, the international banker said that the team would review the situation and come up with the required position.
No political influence
The newly confirmed governor also 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.
Senators’ advice
The Senate on Tuesday after hours of screening confirmed the appointment of Olayemi Cardoso as the substantive governor of the Central Bank of Nigeria alongside four deputy governors.
The deputy governor nominees include Emem Nnana Usoro, Muhammad Sani Abdullahi Dattijo, Philip Ikeazor, and Bala Bello.
Cardoso 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.
During the exercise, the lawmakers bemoaned the woes be-devilling the country’s economy, as they expressed fears at the involvement of the regulatory bank in sectors outside the mandate of the Central Bank Act, 2017.
The Senate President, Godswill 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.
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.
This is as he tasked the incoming CBN board to work towards steering the economy to saner paths, as he lamented the poor standing of the Naira against the Dollar
Senator Olalere Oyewumi raised the issue of concurrent use of old and new Naira notes, seeking clarity on the matter.
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. Oyewumi sought Cardoso’s stance on continuing the dual currency system.
Earlier, Senator Abdul’Aziz Yari queried whether the CBN is legally empowered to generate profits. Senate President Godswill Akpabio raised concerns about previous governors’ actions potentially operating as a parallel government.
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, 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.
Oshiomole urged innovative approaches to address economic challenges and questioned the uncritical adoption of Western economic models.
Oshiomole 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 central bank of Nigeria 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.
Anchor borrowers, others
Meanwhile, Olayemi Cardoso, has stated that there is a need to pull the apex bank from direct development finance interventions to refocus the priorities of the bank.
According to the new governor of the apex bank, the bank needs to move into a limited advisory role that supports economic growth rather than actively play a prominent role in the financing of these projects.
In 2015, the former governor of the CBN, Godwin Emefiele, stated that the bank had over the years been involved in the financing of growth-enhancing programmes and projects of the Federal Government.
He stated that these involvements are incidental to the bank’s core mandates and part of its development and corporate social responsibilities, to accelerate growth and development of the country’s economy.
There are various schemes and programmes either implemented directly, in conjunction with the Federal Government or through specialised financial institutions.
According to the CBN, development financing is one of the requirements for sustainable economic growth and the supply of finance to various sectors of the economy will promote the growth of the economy.
However, the new CBN governor has stated that this an apex bank without the distraction of development financing will better serve the country’s economy.
He said, “Given this, a refocused CBN will better serve the country through monetary policy interventions and advisory rules that sustain implementation of the administration’s fiscal proposals.
“Advisory role of CBN, much has been made of past CBN forays into development finances, such that the lines between fiscal policies 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.”
Cardoso highlighted that these advisory roles include acting as a catalyst in the propagation of specialised institutions and financial products that will support emerging sectors of the economy, facilitate new regulatory frameworks to unlock dormant capital and accelerate of access to consumer credit and expansion of financial inclusions to the masses.
In 2022, the Director, Development Finance Department, CBN, Mr Yusuf Yila, disclosed it had disbursed N9.71tn in financial interventions to different sectors of the economy in the last three years according to various reports.
Addressing other aspects of his task as governor of the apex bank, Cardoso stressed that the challenges the bank faces are a lot. He declared that corporate governance continues to plague the bank.
He continued, “We also identify the diminished institutional autonomy. How can public and financial systems stakeholders’ confidence be restored in the autonomy and integrity of the CBN?
“Can the central bank look to adopt a worldwide code for institutional autonomy? We also look at the need to refocus CBN back to its core functions. What needs to be in place to revert to evidence-based monetary policies? Discontinuation of unorthodox monetary policies and foreign currency management. Unorthodox use of Ways and Means spending. What controls can CBN develop to enforce statutory limits in Ways and Means?”
Cardoso further noted that the backlog of foreign exchange demand is an issue the bank must address while clarifying fiscal and monetary relationships. He stressed that there is a need to draw clear lines in the relationship and determine what the limit is in CBN’s fiscal interventions.
According to him, the issue of inflation and price stability is a major function of the Central Bank. According to him, about 50 per cent of inflation in the country is because of money supply and deficit financing. He stated that going forward, the CBN will do everything possible to work closely with everyone involved and ensure that deficit financing is no longer a thing.
Commenting on the bank’s role in the FX market, he said, “We are also interested in access to foreign exchange markets and foreign exchange price discovery. What mechanisms exist to address a foreign exchange rate unification under a willing buyer and seller arrangement?
“What would be the role of the Central Bank in the foreign exchange market going forward? Is there a need for interest rate realignment to money supply, inflation, and market realities?”
While still convincing the upper chamber of his suitability for the job, Cardoso stated that current financial system stability was important to the bank and there needs to be an in-depth review to determine which mechanisms are currently working.
He further noted that the economic policy proposals of the current administration have identified a set of fiscal reforms and growth targets that will achieve a $1tn GDP within eight years.
The new governor said, “In reviewing selected growth target that will achieve $1tn GDP, we have reviewed selected countries with large populations and similar development characteristics as Nigeria, it is interesting to identify macroeconomic indices that point to Nigeria’s economic trajectory given faithful implementation of the proposed economic reforms.
“In economies bigger than $1tn, these indices include moderate inflation, sizable foreign reserves, and capacity to quickly rebound from significant economic downturns. In other words, to the extent that the administration has defined such a bold target for the country, it is our feeling that achieving this is critical to achieving the stability that we require in various economic indices.”
The new governor further stressed that his administration would adhere strictly to the CBN ACT of 2007. He also committed to the twice-a-year review with the house.
