It has been a month of U-turns for Central Bank of Nigeria (CBN) governor Godwin Emefiele, who combines what is meant to be a regulatory role with more power and influence than any other official in Abuja. This is partly because Emefiele so accurately mirrors President Muhammadu Buhari’s economic views. Yet when faced with overwhelming global financial pressures, Emefiele has reluctantly changed course. And insiders in Abuja say there will be more corrections to come on monetary, fiscal, and forex policy.
As international conditions get tougher, the influence of other voices may grow. The President’s Economic Advisory Committee (EAC) is already at odds with Emefiele and could wield greater clout. Also in question is the status of Chief of Staff Abba Kyari who has tested positive for coronavirus. Influential on economic policy, as well as diplomatic and security issues, Kyari is in self-isolation for at least two weeks which has left a vacuum in the presidential office.
On 12 March, the CBN issued a press release insisting that ‘market fundamentals’ did not justify devaluation of the naira and denying that it was planning any adjustment to the exchange rate. Instead it blamed ‘unscrupulous players’ for speculation and rumours that a devaluation was pending, and threatened to sanction any culprits identified by a joint CBN–Nigerian Financial Intelligence Unit (NFIU) investigation. This was an optimistic stance under the circumstances:
- Nigeria’s foreign exchange reserves have already dipped to US$36 billion, around 20% lower than last year.
- The naira was trading at worse than ₦400/ US$ on the bureaux de change (BDC) and currency forward markets.
- Commercial banks were offering a rate of ₦390/US$1.
- Several economists, within and outside Nigeria, predicted a naira devaluation during or before 2020Q2.
Yet the combined pressure of depleted reserves, the oil price collpase, and reduced export earnings has forced the CBN to set a ₦380/US$ rate on both the investors/exporters window and the BDC market, representing an approximately 4% reduction from previous rates.
The devaluation of the official ₦307/US$ exchange rate provided to prioritised purchasers to ₦360/US$ is equivalent to a 15% fall. Emefiele’s characterisation of the ₦380 rate — as an adjustment rather than a devaluation — does not change the underlying reality. Nor will it discourage speculation that the CBN is moving towards setting a single, unified exchange rate as previously suggested by the International Monetary Fund (IMF).
Given the likelihood of a prolonged period of low oil prices, further ‘adjustment’ of the naira this year appears is likely. Many bankers expect it to settle around ₦400/US$1.
There will be other measures to restrict access to foreign exchange. The main question is how far a weaker naira will improve Nigeria’s trade balance and boost the economy. Much will depend on the trajectory of oil prices and global market conditions.
Emefiele also announced several initiatives on 16 March to protect businesses from the threatening economic tide:
- reduction of interest rates and a one-year principal repayment extension on loans to SMEs granted under CBN programmes
- creation of a new fund to support businesses in sectors directly hit by the pandemic
- targeted support for the health sector, including pharmaceuticals companies
- encouragement of deposit money banks to restructure/adjust loan terms for businesses in key sectors including agriculture, manufacturing, and the oil and gas sector, as non-performing loans present a growing risk. Emefiele also promised stimulus to the economy, initially to the tune of ₦1 trillion (US$2.7 billion), then increased to ₦3.5 trillion (US$9.5 billion). This amounts to a third of the 2020 federal budget.
Yet critics say the proposed intervention could still be too modest to tackle the economic challenge.