Emefiele 2nd Coming: Will There Be Any Policy Shift At CBN? (2)

Continued from Monday
Many economists have also blamed the direct intervention in the economy through various direct loan disbursements to some key sectors of the economy as responsible for some distortions in the economy.

Largely, Emefiele’s management of the economy from the monetary policy perspective has been positive with inflation rate down from around 18.5 percent high to 11.25 percent in March this year and a relatively stable banking industry. Not a few people regarded his style of monetary stance as disadvantageous to the economy; rather they have applauded him for helping to stir the economy out of recession.
However, many of the governor’s policies nay the bank under his watch have not gone down well with some economists who believed that the CBN governor had not fair better in the management of the foreign exchange in spite of the relative stability in the market.
They noted that the prevailing stability in the market is largely due to the recovery in the oil price in the international market and increase in Nigeria’s production output, which has helped raise foreign exchange revenue from crude exports.
Besides the recovery in crude oil market, the return of the offshore portfolio investors into the country through the Investors’ and Exporters’ Forex Window and the increased external borrowing to fund government budget deficit have helped to boost the nation’s forex buffer.
While it appears the country’s foreign exchange reserves have significantly increased since 2017, the truth of the matter is that the increase is largely due to factors that are not backed with solid fundamentals.
For instance, any attempt by the United States Federal Reserves (Fed) and other Western nations to normalise their monetary policy on interest rate could lead to a reversal in capital flows and have adverse impact on the local foreign exchange market.
Also, a reverse performance of the oil sector either due to collapse in oil price or production shutdown due to crisis in the Niger Delta region could also lead to a sharp drop in the forex buffer and consequent negative impact on the naira.
Though the banking industry is outwardly relatively stable, all is still not well with the sub-sector of the economy. From the report of the bank staff on the industry, Non-Performing Loans remain far above the industry threshold, while many of the banks are largely averse to granting loans to the productive sectors of the economy. Rather, the banking industry is largely focusing more of their funds on investment in fixed income assets of government, while many of them are highly exposed to foreign exchange asset.
In the next five years, Emefiele will have to channel more energy on ensuring that the banking industry does not fall apart and remain supportive of the economy rather than being mere rent-seeking institutions. Some banks currently operating below the industry capital adequacy ratio should be supported to beef up their capital base and ensure clear stability in the sector.
Equally, the governor must set aside sentiment and politics and deal with the issues of multiple foreign exchange regimes, which currently provide rooms for arbitraging by the privileged few in the country.
The country does not have any justification for maintaining multiple foreign exchange windows. The current regime lacks transparency in terms of who gets what at what rate at every given time. The government is also losing huge resources that could have helped it offset its large budget deficit with appropriate pricing of the exchange rate for revenue conversion.
Much as the CBN’s direct intervention in the economy has helped provide liquidity for some critical sectors, such as the power sector, the textile industry and the agriculture sector, the impact of the liquidity injection in the system has been adverse and destabilising.
There are insinuations in the industry that Emefiele, being a banker, has remained soft on the players in the industry and as such encouraged the exploitation of customers by banks through arbitrary charges and fleecing of customers through various unsanctioned infractions. But in fairness to the CBN governor, he has improved on consumer protection policy of the regulatory bank and has helped many bank customers cheated by their banks to recover billions of naira in illegal deductions.
However, going forward, the governor should pay more attention to regulations and supervision of the industry to ensure compliance with extant regulations by players in the industry.
The regulatory bank under the watch of Emefiele should also help to discourage banks from undue foreign exchange exposure, especially to sectors and institutions that do not generate nor earn foreign exchange.
Though much rapid change should not be expected from the CBN governor going forward, he should be seen to be more decisive in addressing some of the concerns raised by both the IMF and World Bank on the management of the nation’s monetary policy so as to stimulate growth both in the banking industry and the economy at large.
By his reappointment, some foreign investors are assured of the sustainability of monetary policy and this will eliminate the risk of capital flight because of fear of uncertainty that would have characterised appointment of a new person.
It is also a signal by the government that there won’t be any shift in policy direction irrespective of the expectations of both the public and the international community.
It’s time for the 56-year-old ex-chief executive of Zenith Bank to encourage more robust monetary shift that would help stimulate the economy and help create the needed job by the growing youth population.
He should be more focused on the big picture and provide some policy targets capable of blocking all leakages in the system and be more bullish in his approach to building a lasting legacy in the regulatory bank.
Concluded