The new CBN governor has a difficult job to do

Nigeria is about to have a brand new central financial institution governor. On September fifteenth, President Bola Tinubu nominated Olayemi Michael Cardoso to succeed Godwin Emefiele, who had been in workplace since June 2014. Emefiele’s tenure halted in June when the President suspended him, and Folashodun Shonubi took over as a placeholder.

The Senate should ratify Cardoso’s appointment. 4 deputy governors additionally be a part of the management of the Central Financial institution, pending Senate approval: Mrs. Emem Nnana Usoro, Mr. Muhammad Sani Abdullahi Dattijo, Mr. Philip Ikeazor and Dr. Bala M. Bello.

Cardoso’s resume contains being the previous chairman of Citibank Nigeria with over 30 years of expertise, sitting on the boards of Nigerian subsidiaries of Texaco and Chevron and chairing the EFInA committee. Nevertheless, there are considerations over doable partisanship. Cardoso has an over two-decade-long relationship with Tinubu. In 1999, Tinubu’s first time period as Lagos state’s governor, Cardoso turned Commissioner for Price range and Financial Planning. Nevertheless, he didn’t full that time period as a result of he gained the Michael Romer Memorial Scholarship. Additionally, in 2015, Cardoso was one in all three names thought-about to grow to be Vice President to Muhammadu Buhari.

One motive for considerations about Cardoso being partisan is that his predecessor confirmed the identical trait. In 2022, Godwin Emefiele reportedly made a refined entry into the presidential race below the ruling celebration, APC. It took a courtroom order to cease that ambition. That’s the reason when lots of the insurance policies Emefiele pursued in his time as governor appeared to have the nod of President Buhari, it referred to as the apex financial institution’s independence into query.

Whether or not or not Cardoso has presidential ambitions, being partisan can affect his decision-making in such a delicate workplace. As an illustration, the central financial institution printed N23.72 trillion to lend to the federal government over the past seven years, a 2900% leap. These “methods and means” loans have grow to be a big addition to Nigeria’s towering debt portfolio. In January, former President Buhari proposed to show the debt right into a 40-year bond with a 9% rate of interest quite than rolling it on the CBN’s 19.5%. Extra notably, the CBN was lending more cash than allowed by its personal legal guidelines.

Nevertheless, partisan or not, Cardoso will likely be taking over a heavy job. His first main take a look at will come within the forthcoming Financial Coverage Committee (MPC) assembly, the place he should resolve on Nigeria’s rates of interest. The nation has raised rates of interest eight consecutive occasions to tame rising inflation charges. However inflation has been cussed and is now at an 18-year-high.

The brand new CBN governor will even must make the naira secure within the foreign exchange market. His predecessor has carried out poorly on this space, because the naira fell by over 415% in opposition to the greenback in his tenure. The hole between official and black market charges additionally widened from 10% to over 80% earlier than narrowing to 22%. The choice to discontinue a set change charge system helped scale back the market arbitrage but in addition tanked the naira on the official market.

Efficiently reviving the naira will likely be an enormous chip on the brand new governor’s shoulder. However it gained’t come simple. Demand for {dollars} is extraordinarily excessive whereas provide retains shrinking. These requests come from producers and importers who purchase uncooked materials inputs from overseas, mother and father who pay their kids’s tuition charges overseas, Nigerians who pay medical payments overseas, travellers who supply Enterprise Journey Allowances (BTAs) and Private Journey Allowances (PTAs), and so on. However as a result of {dollars} are briefly provide, the central financial institution has over $10 billion in foreign exchange backlogs. Two weeks in the past, the central financial institution promised to clear these backlogs in two weeks. Now that this timeline is up, nothing has modified. Nigeria’s foreign exchange reserves additionally shrunk severely below the earlier governor.

This foreign exchange debacle made the Monetary Instances Inventory Alternate (FTSE) downgrade Nigeria’s score to an “unclassified” market. And since clearing these backlogs is essential to stabilising the naira and attracting buyers, it is going to be on the brand new governor’s entrance burner.

The CBN governor will even have to plot enhancements to a number of tasks by the previous administration. As an illustration, the e-naira, which Emefiele launched in October 2021, has little or no adoption. Additionally, the central financial institution’s bid to tame inflation has made it get entangled in financing meals manufacturing. However this program hasn’t helped a lot in boosting meals manufacturing.

Arguably, the hardest a part of his job will likely be redefining boundaries the earlier governor didn’t maintain. That entails regaining full independence and refocusing on its main job of main financial coverage.