By Chinwendu Obienyi
There is no gainsaying that the Nigerian economy performed poorly in 2023 compared to 2022.
The deterioration also had its bang effect on the banking sector owing to the whirlwind of policy changes carried out by the old and new administrations under former President Muhammadu Buhari, and current President, Bola Tinubu, through the Central Bank of Nigeria (CBN).
From the naira redesign policy, removal of fuel subsidy and unification of exchange windows, 2023 will be a year that Nigerians will want to forget in a hurry as the policies dealt hard blows on households and businesses.
This is not to say that it was not a challenging year for other nations. There were factors like soaring inflation, rising interest rates, geopolitical shocks and tight labour markets which caused several uncertainties globally.
However, the focus is on Nigeria, the “supposed largest economy in Africa” which witnessed some highs and lows in the year under review despite the bounce of the new administration’s fast-paced reforms which have since slowed down.
Naira redesign
This took center stage last year and almost brought the Nigerian economy to a halt. Former Governor, CBN, Godwin Emefiele, had on October 26, 2022, announced the redesign of the N200, N500 and N1,000 Naira notes. According to him, the goal was to control the circulation of money and also tackle illicit financial flows.
To buttress this, Buhari on November 23, 2022, unveiled the new Naira notes alongside Emefiele, who stated that enough notes have been printed and will be in the hands of commercial banks who in turn will see to the circulation of money across the country. He also announced that there will be no time for deadlines as the old notes are expected to be mopped out of circulation by January 31, 2023.
But as the deadline drew closer, chaos suddenly engulfed the economy as citizens who were already affected by the rising cost of goods and services, took to damaging bank facilities due to the fact that the notes were actually in short supply. As the scarcity stifled economic activities, Point of Sales (PoS) operators raised charges on transactions by as high as 500 per cent in some places.
This development drew several criticisms from state governors, gubernatorial aspirants, non-governmental groups, economic analysts, private sector, investors amongst others. The governors then filed a suit to get the Supreme Court involved in the situation. After several attempts, the Supreme Court ordered that the N200, N500 and N1,000 notes be left as legal tender till December 31, 2023. However, the Court declared that old naira notes will no longer have a deadline. Also validating the change, the court noted that the old and new naira notes would co-exist until further notice.
New government, new CBN leadership
The year 2023 heralded a new government in the form of President Bola Tinubu (All Progressive Congress) who won the Presidential election ahead of Atiku Abubakar of the Peoples Democratic Party (PDP) and Peter Obi of the Labour Party (LP). Hence, changes to the cabinet were expected and one of the things Tinubu did was to suspend Godwin Emefiele. Although many political analysts stated that this was “politically motivated” due to the latter’s role in the ill-advised Naira redesign policy, Tinubu went ahead to appoint Folashodun Shonubi as the CBN acting governor.
Until his appointment, Shonubi was the Deputy Governor, Operations Directorate. However, the Senate in September confirmed the appointment of Olayemi Cardoso as the governor of the apex bank.
The Godswill Akpabio-led Red Chamber also confirmed the appointments of Emem Usoro, Muhammed Abdullahi-Dattijo, Philip Ikeazor and Bala Bello as deputy governors of the apex bank.
Tinubu had nominated them for the positions on 15 September pending confirmation of the Senate. On resumption of duty, the Cardoso-led team discontinued the direct quasi-fiscal interventionist activities and instead maintained that it would utilize orthodox tools for implementing monetary policy.
Cardoso also said that the monetary policies of the bank will aim to achieve price stability, foster sustainable economic growth, stabilize the exchange rate of the naira, and reduce interest rates to facilitate borrowing and investments in the real sector. Furthermore, at a bankers’ forum, Cardoso revealed that the CBN is planning to increase the capital base of commercial banks in the coming months.
Liberalised FX market and FX volatility
As part of a series of policies to ensure Nigeria’s economic recovery, the CBN under the supervision of the then CBN acting governor, Folashodun Shonubi, announced the unification of all segments of the FX market into the investors’ and exporters’ window now called Nigerian Autonomous Foreign Exchange Market (NAFEM). This led to the devaluation of the Naira as the willing buyer, willing seller model was introduced. Since then, the FX market experienced high levels of volatility, resulting in further widening of the gap between the parallel and official rates.
For instance, the exchange rate between the naira and dollar at the official NAFEM closed the year at N907.11 per dollar marking the end of a turbulent year for the currency of Africa’s largest economy. At that figure, the exchange rate has now recorded a depreciation of 26.8 per cent since the unification.
This meant that on a year-to-date basis, the exchange rate has depreciated by a whopping 49 per cent after opening the year at N461.5/$1. The slump has raised concerns about a deepening currency crisis in Nigeria, further compounding the economic challenges faced by the nation.
Skyrocketing inflation and loans
Owing to the removal of fuel subsidies and collapse of FX windows, Nigeria’s headline inflation has continued to rise. Currently, the inflation index stands at a 20-year high of 28.2 per cent in November, according to data obtained from the National Bureau of Statistics (NBS).
The data also revealed that food inflation was steeper at 32.84 per cent year-on-year, which is 8.72 per cent higher than the 24.13 per cent food inflation rate recorded in November 2022. Furthermore, the Debt Management Office (DMO) revealed that the nation’s public debt profile has increased to N87.91 trillion at the end of the third quarter (Q3) of 2023, representing a 0.61 per cent increase compared to N87.38 trillion recorded in June 2023.
The debt office also said domestic debt increased by N1.8 trillion while external debt reduced from $43.16 billion as of June 30, 2023 to $41.59 billion at the end of Q3. Similarly, despite an earlier restructuring that trimmed down the FG’s debt to CBN through Ways and Means advances to N4.36 trillion, an agency report revealed that a recent request from President Bola Tinubu suggested an urgent need for approval to securitise the outstanding balance, potentially ballooning to N7.3 trillion.
This implies that over six months, the FG may have effectively procured N2.94 trillion from CBN, raising eyebrows amid the controversies surrounding this financing avenue. The report further noted that before the initial restructuring in June, the loan rose by N3.42 trillion in 5 months, from N23.53 trillion in December 2022 to N26.95 trillion in May 2023. This paints a picture of the FG potentially securing approximately N6.4 trillion from the CBN through Ways and Means advances throughout the year under review.
Hence, the country’s economic woes have pushed into poverty and expensive emergency loans to cover the cost of essentials. A survey conducted by Lagos-based SBM Intelligence revealed that 27 per cent of Nigerians now depend on loan apps to buy food and meet other expenses for their survival.
Interest rate hikes
In response to the global uncertainties, especially inflation, central banks around the world raised their interest rates. The CBN, following the footsteps of other banks, have increased interest rates across 2022 and 2023 to curb inflation. For the seventh consecutive time since April 2022, the CBN in July raised its benchmark interest rate, the Monetary Policy Rate (MPR). But, since its last rate hike of 18.8 per cent in July 2023 at its Monetary Policy Committee (MPC), there has not been another meeting.
FX ban on 43 items lifted
Amid the high level of FX volatility, the CBN announced the lifting of the ban on 43 items previously restricted from accessing FX. According to the CBN, this was done as part of efforts to boost liquidity in the market. The CBN had in 2015, restricted 41 items from accessing FX from the I&E window and as a result of this, importers were forced to source for FX at the parallel market often at a higher price. The apex bank later added two items to the list in 2018 and 2020, respectively.
CBN’s directive on accounts without NIN, BVN
The apex bank disclosed this in a circular to all commercial, merchant, non-interest and payment service banks, other financial institutions and mobile money operators, noting that all individual existing and new tier 1, 2 and 3 accounts/wallets must have BVN or NIN.
The circular signed by the Director, Payment System Management Department at the CBN, Mr Chibuzo Efobi and Director, Financial Policy and Regulations Department, Mr. Haruna Mustapha, noted that the mandate was part of the apex bank’s effort in promoting financial system stability which has led to its amendment of Section 1.5.3 of the Regulatory Framework for BVN Operations and Watch-List for the Nigerian Banking Industry (Guidelines).
The CBN’s circular also specified that existing unfunded individual Tier 1 accounts without BVN or NIN would be placed on “Post No Debit or Credit” immediately. “For all existing Tier 1 accounts/wallets without BVN or NIN: Effective immediately, any unfunded account/wallet shall be placed on ‘Post No Debit or Credit’ until the new process is satisfied.
Effective March 1, 2024, all funded accounts or wallets shall be placed on ‘Post No Debit or Credit’ and no further transactions permitted. The BVN or NIN attached to and/or associated with all accounts/wallets must be electronically revalidated by January 31, 2024”.
It said that to ensure uniform and full compliance, the executive compliance officers, chief compliance officers or heads of the compliance functions are advised to acquaint themselves with the attached guidance notes which becomes applicable to all institutions regulated by the CBN.
Return of Naira scarcity
Following the directive, this sent panic across bank customers, especially wealthy ones, as they besieged commercial banks and the National Identity Management Commission offices and centers. Furthermore, some commercial banks across the country were forced to reduce the volume of cash transactions amid the rising demand of cash by customers. Hence, the year is ending the same way it started with the return of naira scarcity in major cities across the country, despite data from the CBN showing that the currency in circulation (CIC), peaking to the pre-naira redesign era, as there was N2.99 trillion in circulation as of October 2023.
Experts react
Economic analysts who spoke to Daily Sun, noted that Nigerians in the year under review felt the impact of rapid price pressures adding that business investments have also remained underwhelming amid significant FX pressures as FX inflows remain limited.
According to them, available evidence suggests that the government is the only economic agent that appears to be unfazed by the weak macroeconomic narrative as its spending pattern has not changed much relative to the prior years.
Macroeconomic strategist at Cordros Securities Limited, Abdulazeez Kuranga, said, “When the government embarked on its fast-paced reforms (which have since slowed) upon assuming office on 29th May, we expected it to institute cost-cutting measures as a sign of faith with the Nigerian citizens who are bearing increased cost pressures amid stagnant income.
However, it appears the citizens are indirectly funding the government’s expensive lifestyle given that the fiscal authorities have (intend to) maintain their expansionary fiscal policy (at a time fiscal consolidation should be the order of the day) while the citizens are left to bear the significant brunt of reforms”.
Kuranga added that nonetheless, some of the government’s measures at alleviating the price pressures stemming from its reforms, including N35,000 provisional wage increment for all federal government workers for six months and N25,000 cash transfer to 15 million households for three months, which started in October, is commendable.
On the outlook, he stated that the local macroeconomic environment is expected to improve relative. “Our expectation is hinged on gradual phasing out of the current impact of PMS subsidy and FX reforms on the non-oil sector, higher crude oil production relative to 2023 levels amid supportive oil prices, FX supply improvement in line with the authorities’ expectations of FX inflows from arrangement with international banks, and anticipated disinflationary trend in the second half of 2024”.