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By Chinwendu Obienyi
When the incumbent administration embarked on its fast-paced reforms, it was expected that this would institute cost-cutting measures as a sign of faith with Nigerians who were already bearing the pressures of increased cost amid depreciating income.
However, the subsidy removal and forex market reforms which showed promise at first, have now left the citizens frustrated as they have been left to continuously bear the brunt of reforms owing to further increase in goods and services.
Furthermore, killings and kidnappings have continued unabated in many parts of the country and the obvious elephant in the room- naira devaluation amid the low supply of forex, has caused soaring inflation rate, systemic distortions in the economy, exits of multinationals, high unemployment rate amongst others.
Similarly, following the recent interview granted by the Central Bank of Nigeria (CBN) governor, Dr Olayemi Cardoso, which was monitored by Daily Sun and his comments whilst speaking on the state of the nation’s economy before the Senate Committee on Banking, Insurance and other financial institutions, gave hope that current reforms being carried out at the CBN wwre yeilding desired fruits.
The official rate of the naira tumbled by 37.7 per cent last month against the dollar to exchange at N1,455.59/$1 (the pair had earlier lost 49.2 per cent in 2023 to rank among the top five worst-performed currencies globally), while headline inflation reached a three-decade high of 28.9 per cent in December 2023 with little hope of a respite in the near-term.
During his speech before the National Assembly, Cardoso re-emphasised that Nigeria has reached an inflection point and that the ongoing critical reforms across various segments would tackle longstanding legacy issues. He highlighted recent upgrades in credit ratings by international agencies and commendations from the International Monetary Fund (IMF) and World Bank as proof of reform progress.
Regarding the domestic economy, the apex bank governor aligned with the FG’s 3.8 per cent growth projection for 2024, stating that the outlook was based on expected gains from increased crude oil production, higher crude oil prices and ongoing reforms. He also noted that he expects average headline inflation rate to ease to 21 per cent at the end of the year before blaming the naira pressure on simultaneous increase in dollar demand for education, healthcare and imports alongside declining supply.
Cardoso argued that several strategies such as unifying forex segments, clearing outstanding forex obligations, enforcing banks’ Net Open Position (NOP) limit amongst others, are in place to enhance liquidity and price discovery in the forex market. In his interview, the apex bank governor stated that out of the $7 billion forex backlog inherited, the CBN had cleared $2.5 billion in verifiable claims, with $2.2 billion outstanding and $2.4 billion having irregularities.
Due to this development, foreign investors have continued to remain cautious, staying on the sidelines due to perceived inadequacies in the nation’s forex market.
Precisely, inflows from foreign sources reached a four-month low of $133.20 million, down from $237.10 million in December 2023 and economic analysts stated that the absence of interventions led to this development. Cardoso however, noted that he is not against interventions but that the apex bank would focus on its core mandate following the mismanagement of about N10 trillion which was spent before he assumed office.
Indeed, before Cardoso assumed office, the CBN’s ways and means to the government had reached threshold levels which made the bank somewhat weak but Cardoso at the weekend, stated that the CBN is no longer at liberty to grant further ways and means advances to the federal government until the outstanding balance as of December 31, 2023, is fully settled.
All these developments point to the fact that the Cardoso-led administration is trying to return the CBN to its core mandate but the question that lies therein is, should Nigerians begin to reduce or raise their optimism over the country’s economic outlook?
Experts react
Reacting to the CBN governor’s speech, analysts at Afrinvest Research, in their report titled; ‘Cardoso’s sectoral speech, Economic Silver Lining or Vague Optimism?’, said that Cardoso’s bold stance that Nigeria had reached an economic turning point is premature.
“We note that the sort of fiscal and monetary policy cohesion shared vision that should deliver the turning point is yet to be birthed.
“On the exchange rate, we flag that the CBN governor might be looking at the wrong side of the spectrum in emphasising dollar demand for service and imports as the root causes of the declining naira. This is a distraction in tackling the issues affecting forex supply. We opine that the CBN should instead focus on reforms that would restore confidence in the market and boost major forex inflow channels,” they said.
The Vice Chairman, Board of Highcap Securities, David Adonri, applauded the CBN’s efforts in clearing verifiable forex backlogs, stating that it is a much needed step to boosting investors’ confidence. Whilst pointing out that money supply (M3) of N78.7 trillion was in excess liquidity, Adonri tasked the CBN to work more closely with the fiscal side of the economy.
Adonri said, “Closer coordination with the fiscal arm is needed to curb the excess liquidity seeing that M3 grew by 51 per cent year-on-year (y/y) to N78.7 trillion. That way, Nigeria’s economic outlook is hinged on the extent at which the two bodies can harmoniously work together, otherwise, all the projections and promises will mean nothing.”
Conclusion
While there are positive signs of reform and efforts to address economic challenges, there are also concerns about the effectiveness of these measures and the need for better coordination between the monetary and fiscal policies. As such, the level of optimism for Nigeria’s economic outlook remains uncertain and may depend in steps to making the country productive again, successful implementation of reforms and improved policy coordination in the future.
