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HomeExecutive BriefHighlights of Cardoso interview and its implications for Nigeria's economy

Highlights of Cardoso interview and its implications for Nigeria’s economy

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By United Capital

The Governor of the Central Bank of Nigeria (CBN), Olayemi Cardoso, engaged in an exclusive interview with Arise Television on Monday, February 5, 2024.

The conversation encapsulated critical insights, which have been summarised along with our viewpoints.

1. The Central Bank of Nigeria (CBN) or the Apex Bank acknowledges the liquidity shortage prevailing in the foreign exchange (FX) market, attributed to certain distortions leading to market volatility.

2. Consequently, CBN has conducted a thorough review of these distortions and is implementing policies aimed at advancing transparency, liquidity, vibrancy, and free entry and exit within the market.

3. Mr. Cardoso highlighted that the reforms instituted by the Apex Bank embrace market liberalisation, the principle of free
Entry and exit aim at attracting foreign portfolio investments (FPIs) and foreign direct investments (FDIs).

4. Thus, the CBN has no plans to convert domiciliary accounts into Naira, as such actions would contradict its overarching
strategy of promoting a free market and facilitating exit opportunities.

5. He noted that several efforts, like its recent directive to banks to maintain a net open position (NOP) limit of the overall foreign current liabilities not exceeding 20.0% short or 0.0% long of shareholder funds and its directive to international money transfers (IMTOs) to maintain a minimum operating capital requirement of $1.0 million and to operate in the formal market instead of the informal market, would foster confidence in the market and close the gap between the official and the unofficial market.

6. Furthermore, Cardoso underscored CBN’s proactive approach of focusing on increasing the FX supply side. He highlighted various initiatives, including its recent directive to banks to maintain a net open position (NOP) limit, ensuring that the total foreign current liabilities do not exceed 20.0% short or 0.0% long of shareholders’ funds.

Additionally, he mentioned the directive to International Money Transfers (IMTOs) to maintain a minimum operating capital requirement of $1.0 million and operate exclusively within the formal market, which aims to bolster market confidence and narrow the gap between the official and unofficial FX markets.

7. On FX backlogs of an estimated $7.0 billion, the CBN has taken a deep look by contracting Deloitte to conduct a forensic audit of the backlogs. Results from the audit show that $2.4 billion in claims for the backlogs were not qualified for settlement as some of the entities did not exist, there were a lack of valid import documents, etc.

Meanwhile, $2.3 billion has already been settled and is left to settle $2.2 billion in no distant time. The CBN expressly stated that the unqualified claims of $2.4 billion will not be settled.

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8. On FX backlogs amounting to an estimated $7.0 billion, the Apex Bank has engaged Deloitte to conduct a comprehensive forensic audit. The audit findings reveal that claims totaling $2.4 billion from the backlogs do not meet the criteria for settlement. Thus far, $2.3 billion has been successfully settled, with the remaining $2.2 billion slated for settlement shortly. The CBN has unequivocally stated that the unqualified claims totaling $2.4 billion will not be addressed.

9. Cardoso emphasised the imperative for collaboration between the monetary and fiscal authorities through routine
meetings. He underscored the importance of mutual understanding regarding their respective actions and their interdependence to steer the economy in the right direction.

10. Regarding the recent government directive instructing the Nigerian National Petroleum Corporation (NNPC) and other
Ministries, Departments, and Agencies (MDAs) to remit their revenues to the CBN, the CBN Governor remarked that this decision is a positive step aimed at enhancing investor confidence in the economy.

11. Evaluating the present condition of the naira, Cardoso asserts that the currency is undervalued, attributing this to distortions stemming from investor panic and a lack of comprehension of the market, leading to irrational decisions. Nonetheless, he advocates that the period of panic has elapsed, as appropriate policy measures have been implemented and endorsed by the international community and rating agencies.

12. The need for strategic interventions was acknowledged during the conversation. The governor identified the need to support various sectors like extractive industries, SMEs, farmers, manufacturers, and entertainment industries. However, it is imperative that a robust framework be in place to ensure that the interventions reach their intended recipients effectively.
address their challenges.

The CBN seeks to engage stakeholders in collaborative discussions to chart a way forward on this issue.
13. Ahead of the upcoming Monetary Policy Committee (MPC) meeting scheduled for February 26–27, the CBN plans to engage extensively with both internal and external stakeholders. This proactive approach stems from the identified issue of transmission from previous MPC meetings. Consequently, the decisions made by the MPC are expected to have a more
significant impact as they collaborate closely with the fiscal side of the economy.
14. Additionally, Apex Bank aims to enhance the dissemination of its MPC decisions to the public through a thorough revamp of its communication strategy. It was emphasised that active engagement with financial and economic stakeholders will be prioritised to strengthen feedback mechanisms on MPC decisions.

Additionally, the Central Bank plans to leverage social media and other digital platforms to streamline its communication efforts moving forward.

15. In conclusion, regarding the relocation of certain key functions from the CBN’s Abuja office to its Lagos office, Cardoso emphasised that the CBN maintains a presence in every state. The decision to transfer staff from the Abuja office to Lagos stems from the necessity to address staffing shortages in specific offices and to alleviate overcrowding in the Abuja office.

This measure aims to ensure that offices with limited staff are adequately resourced, thus optimising operational efficiency.

Our Viewpoints.
• We anticipate a modest improvement in the valuation of the naira as a consequence of the effective implementation of the CBN’s reforms. However, we recognise that investor confidence in the economy remains low.

Addressing this issue would likely lead to a consequent appreciation of the naira. Additionally, it is imperative for the country to enhance its production of crude oil and revitalise the non-oil sector to diversify its revenue sources, thereby strengthening the naira.
• We hold the belief that the CBN’s newly adopted communication strategy will play a pivotal role in educating the public about the rationale behind Apex Bank’s decisions. Specifically, the effective communication of the Monetary Policy Committee’s decisions may shed light on the necessity for the MPC to address inflationary pressures in the country.
• Deciding to collaborate with stakeholders represents a prudent and forward-thinking approach. This initiative will not only promote inclusivity within the market but also strengthen confidence in the economy. As stakeholders offer valuable insights to decision-makers, it fosters an environment where diverse perspectives contribute to informed decisions.

(Edited by Oludare Mayowa; omayowa@globalfinancialdigest.com; Newsroom: +234 8033 964 138)

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