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Since the current federal government was sworn in on 29th May, last year, the Central Bank of Nigeria (CBN) has rolled out a raft of policy initiatives largely aimed at managing the naira’s exchange rate difficulties. It was one such policy initiative — the introduction, on 14 June, 2023, of the price mechanism into the foreign exchange markets (desirable in itself) — that literally set the policy cat amongst the domestic actors’ response pigeon. Since then, it has been one excuse after the other for the ease with which the naira surrendered value almost daily to other quoted currencies. Anyway, one sense of the CBN’s recent chapter of policy pronouncements has been its bias for performance over purpose
or promise over policy designed to realise the desired outcomes. Take, for example, the recent decision to enforce the rule on banks’ foreign currency exposures.
You just got the sense, the way the CBN broke the news on this policy, that the process of ensuring banks observed “net open position (NOP) limits on their overall foreign currency assets and liabilities not in excess of 20% short or 0% long of shareholders’ funds unimpaired by losses” was a sure-fire way of addressing the supply constraints in the foreign exchange markets. After all, were domestic banks not simply shorting the naira by holding those huge net open positions? And by closing the excesses over regulation in these positions, would the dollar hoards not just flood the markets? In the end, the monetary policy mountain went into labour, and was delivered of a mouse. The naira’s exchange rate has not fared any better. Indeed, the markets were so certain that even the best outcome of this initiative was always going to be fleeting. As was the case with the CBN’s earlier song and dance over its beginning to meet outstanding foreign currency swap obligations to domestic banks.
Evidently, the problem with the naira’s exchange rate (and runaway inflation) goes deeper than superficial solutions will allow. Rather than obsess over the supply of dollars, for instance, we could look to address the naira supply instead. Or take the question, “Why do Nigerians prefer to hold dollars instead of the naira?” This was not the case several years back. One possible response to this question is for the monetary authority to try to demonise the holding of dollars. And that kite is being flown. The new CBN governor never tires of exploring possibilities for managing domestic demand for dollars. Would not the apex bank be better off designing policies that nudge our compatriots to keep their wealth in naira-denominated assets? Time-wasting though the preference for cosmetic interventions over root-and-branch solutions might be, there is a philosophical explanation for the policy choices that the incumbent federal government has made so far.
The explanation lies in the antecedents of most of our current public functionaries. Far too many of them cut their teeth managing Lagos State. And far too many of us know that “Eko is largely for show!” A predilection for the affective over the effective is the single most meaningful explanation for the rapid succession of policy somersaults that the federal government went through in its early days in office.
As with the NOP rule, though, there is another, possibly even deeper reason for the Tinubu government’s odd policy preferences. In discussing the CBN’s move to pare back the banking industry’s net open position in foreign currencies, a feast and a dance was made of the banks’ violation of the NOP rule; but not a whimper was heard of how the CBN’s regulatory failure may have encouraged the rule breaking. President ‘Bola Ahmed Tinubu’s All Progressives Congress government succeeds eight years of former President Muhammadu Buhari’s All Progressives Congress government. From the empty fiscus through the straitened circumstances of the monetary policy space, the crass ineptitude of the Buhari government is the policy price that the Tinubu government must pay.
And pay, it is. Yet, the Tinubu government remains reluctant to fess up to how bad its economic inheritance is. A requirement of party unity? Or just fealty to a lachrymose predecessor’s sensibilities? Whatever the incumbent federal government’s motives, without telling the people how awful things were when it succeeded to office, how dismal they currently are, and how the near-term outlook is all downside risks, the prospects of the Tinubu government’s efforts at persuading the electorate to bear the hardships needed to turn the economy around are worse than Sisyphus’s chance of getting his boulder over the hill’s peak. In this circumstance, the operant question is, “How long ought we to continue putting lipstick on this pig?”
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