CBN may relax forex policy this week

*Central Bank of Nigeria.

*Central Bank of Nigeria.

*IMF economists to review govt policies

10 January 2016, Lagos — Consequent upon pressures and the open admonition by Senate President Bukola Saraki, and made more intense by the Managing Director of the International Monetary Fund, IMF, Ms Christine Lagarde, the Central Bank of Nigeria, CBN, may relax its policy on forex this week.

It was gathered that apart from the call made in the open by the Senate President during last week’s audience with the IMF boss on the CBN, it has also been revealed that Lagarde pointed out, in unequivocal terms, the dangers of the continued forex policy instituted by the apex bank in the last eight months.

During the closed door sessions between the CBN governor, Godwin Emefiele, and Senate President Saraki on the one hand, and another with Ms Lagarde, there appeared to be a drift towards a consensual position on the restrictive forex policy.

Although Emefiele, according to a source at the private sessions, did not give away much regarding the apex bank’s possibility of a policy review, indications are that in the light of the expected visit from IMF economists this week, the policy may be relaxed.

The foreign exchange market witnessed introduction of several foreign exchange restrictions in 2015. The first notable restriction was the closure of official foreign exchange market (Retail Dutch Auction) on February 18, 2015 which translated to further devaluation of the naira to N197 per dollar from N165 per dollar.

The second notable restriction was the Exclusion of 41items from the official foreign exchange market.

Then, in August, the CBN banned acceptance of foreign currency deposit into domiciliary accounts.

In addition to the above, there was the reduction in the limit on usage of naira debit cards abroad. From $150,000 per annum the limit was pegged at $50,000 per annum per naira debit card. The daily cash withdrawal limit was pegged at $300 abroad.

During the year, the CBN banned banks from selling foreign exchange to the Bureau De Change (BDCs) while it revised the operating guidelines of BDCs, and in the process, banned any form of relationship of street hawkers of foreign currency (black market), and branch operations.

These restrictions coupled with dwindling foreign currency inflow due to continued decline in crude oil prices, as well as continued expectation of further devaluation of the naira, led to a consequential depreciation of the naira in the parallel market. The parallel market exchange rate of the naira rose from N179/N185 at the beginning of 2015, to close the year at N280 to a dollar.

And indeed, as a team of economists from the International Monetary Fund, IMF, are set to arrive Nigeria this week, there are indications that the executive and the legislative arms of government may have begun a process of horse trading with a view to making the 2016 Appropriation Bill, more implementable.

A finance ministry source told Sunday Vanguard that the discussions with the managing director of IMF, Mrs Christine Lagarde, who visited both arms of government last week has necessitated major amendments to the Bill, a development which has posed a challenge of how the Bill could be legally withdrawn from the two chambers of the legislature.

But the finance ministry source said the government is not planning to withdraw the Bill yet pending further discussions and understanding with the National Assembly.

Lagarde, while responding to questions on the 2016 budget had told reporters last week that ‘‘a team of economists is going to come here (Nigeria) next week to review and audit (the Bill) and have a good discussion with the government authorities to really assess whether the financing is in place, whether the debt is sustainable, whether the borrowing costs are sensible and what strategy must be put in place in order to address challenges going forward”.

The IMF boss held meetings with the Central Bank of Nigeria, the Finance Minister, Mrs. Kemi Adeosun, National Planning Minister, Udo Udoma, other members of the Executive Council of the Federation, EXCOF, the leadership of the National Assembly and chief executives of banks. She also had closed door sessions with both the President, Mohammadu Buhari, and the Vice President, Yemi Osinbajo.

This week the team of IMF economists are expected to meet with all these government officials and many more including the leaders of the private sector.

It was gathered that areas of discussion for necessary policy actions and changes in the 2016 budget include revenue generation, tax system, fuel pricing, exchange rate policy, reduction in recurrent expenditure especially as it relates to cost of governance, allocations to infrastructure, health, housing and education sectors.

Other areas of possible change in the content of the Appropriation Bill, Sunday Vanguard learnt, will also include but will not be limited to borrowing to fund the budget where the federal government had already stated it would borrow about N2.1 trillion to fund the budget deficit.

Also the team would discuss ways of improving efficiency of the country’s public service, creation of tools to manage the impact of declining oil revenues and measures to reduce leakages.

In addition, the team would canvas measures to address foreign capital inflows, wealth creation in the power and transport sectors, best options for managing near-term vulnerabilities to international economic financial shocks, as well as strategies for improved policies and building stronger institutions.

They will also discuss framework for achieving inclusive and sustainable growth, poverty reduction and good governance at the lower tiers of government, the states and local governments.

Speaking to Sunday Vanguard over the weekend against the backdrop of concerns expressed by some observers on the effect of IMF intervention in Nigeria’s economic and fiscal policies, Nigeria’s leading economists, Professor Pat Utomi, said it was wrong to make a big deal out of IMF visits. According to him ‘’these are routine visits’’.

He stated, “as members of the IMF it should be routine to have consultations. We must not lose sight of the fact that we live in a globalised world and that bad economic management in one country can result in export of troubles to other economies. Such troubles that are exportable – like inflation, the contagion of selling poisoned baskets of securities like the sub-prime crises that triggered the 2008 crises or current account deficits in Malaysia and elsewhere in Asia that started the tsunami of the Asian financial crises – and require some supranational financial institutions. As World War11 wound down the allied powers agreed in Bretton Woods that the IMF should be such.

“But countries have the obligation to model their economies and manage them well. Where the unexpected happens the IMF was put there to help out. We all contribute to and can have recourse to Special Drawing Rights, SDR, of the IMF in temporary trouble times but no one is compelled to go there. Economists from all ends of ideological spectrum, the truth remains that the IMF get bashed when they come in after the leaders have failed to do the right things from evidence available to them, including reports from IMF consultations.

Also reacting to IMF visits, the cheif economists at FSDH Merchant Bank Limited, Mr Ayodele Akinwunmi, told SundayVanguard that the visit of IMF boss was fruitful so far.

According to him ‘’the IMF has endorsed the current effort of the Federal Government of Nigeria to build a new Nigeria. I think her endorsement is positive for international business community.

“She (Lagarde) also told the government what needs to be done such as flexible exchange rate, removal of subsidy and building a buffer and VAT increase.

“I don’t think VAT increase will happen now. But exchange rate flexibility is around the corner with fuel subsidy removal.”

In her various meetings last week, Lagarde, had called for increase in Value Added Tax, VAT, stressing that it has become imperative for the federal government to broaden the country’s tax base explaining that Nigeria has the lowest VAT rate on the African continent.

According to her, “the current VAT rate is among the lowest in the world and well below the rates in other ECOWAS members, so some increase should be considered.”

Although the IMF Managing Director was careful not to endorse the devaluation of naira against major international currencies, she, however, urged the federal government to adopt a flexible monetary policy that will better serve the interest of Nigerians.

She, however, cautioned Nigeria against obtaining loans, noting that it was at the moment affecting the country and subsequent borrowing could hurt the nation’s economy in the long run.

She said: “On recurrent expenditure, efforts should be made to streamline the cost of governance and improve efficiency of public service delivery across the federal and sub-national governments. Transfers and tax expenditures should also be addressed. For example, continuing the move already begun by the government in the 2016 budget to eliminate resources allocated to fuel subsidies would allow more targeted spending, including on innovative social programmes for the most needy.”

Lagarde inside Aso Rock
Her briefing that Tuesday afternoon arguably flowed in staccato tunes. On the one hand, she spotted a passion for Nigerian financial wellbeing as she showed less than a fleeting concern to the cause of the poor. Yet, on another plank, she spoke in some directory stance warning against stiff economic polices that may have adverse effect on Nigeria’s poor populations and the neighboring countries.

Yet, while she spoke, she anticipated an unsavory question about loans and swiftly disabused the minds of her listeners that her mission was not to negotiate a loan. She visited President Mohammadu Buhari at the presidential villa, Abuja on Tuesday to start off her four-day state visit to Nigeria.

“First let me make it clear that I’m not here nor is my team in this country to negotiate a loan with conditionalities. We are not into programme negotiations and frankly at this point in time, given the determination, resilience displayed by the President and his team, I don’t see why an IMF programme will be needed. So, of course, discipline is going to be needed, of course, implementation is going to be key for the objectives and the ambitions to serve the country well, in order for it to be actually sustainable.For better part of the briefing, Lagarde harped on the need for flexible economic policies and financial discipline in the implementation of the 2016 budget of Nigeria”, the IMF MD said.

She acknowledged that President Buhari’s resilience and programmes would surely get Nigeria out of borrowing list of countries of the world.

“But what I certainly mentioned to Mr. President was that his fight and his determination to fight corruption and his determination to bring about transparency and accountability at all levels of the economy are very important agenda item and very ambitious goal that needed to be deliberated upon which he, himself is definitely committed to as he indicated this morning and as he inspires his team members”, she added.

Therefore, emerging from a closed door meeting with president Buhari with the participation of the Vice President Yemi Osinbajo and other senior functionaries of the government which included Minister of Finance, Kemi Adeosun; Minister of Budget and National Planning, Udo Udoma; Minister of Transportation, Rotimi Amaechi; and Minister of Works, Housing and Power, Babatunde Fashola, among others, on Tuesday, Lagarde told State House Correspondents that extra financial discipline must be ensured to get Nigeria working.

President Buhari had, in part, told his guest that “We have just come out of budget discussions after many weeks of taking into consideration the many needs of the country, and the down turn of the economy with falling oil prices and the negative economic forecasts.

“We are working very hard and with the budget as our way forward, we will do our best to ensure that our country survives the current economic downturn.

“We have also told all heads of Ministries, Departments and Agencies of government that on our watch, they will fully account for all funds that get into their coffers.”

The President also revealed that the Federal Government was reviewing its operational costs, saying that it had directed all the Ministries, Departments and Agencies to cut down on their overhead costs.

The Senate meeting
For a place that had been deserted due to recess, Lagarde’s visit to the premises of the National Assembly last Wednesday brought life back to the legislature.

The event was scheduled to kick off at 9:30 that morning but it was not until 12;33 when Senators Shehu Sani, APC, Kaduna Central;Kurfi Umar, APC, Katsina Central; Musa Kwankwaso, APC, Kano Central and Sunny Ogbuefi, PDP, Ebonyi South, entered the venue that signs of possible commencement gave way to anger and despair on the part of some who had taken positions as early as 9am. Senators Francis Aliemekhena, APC, Edo North;Abdullahi Adamu, APC, Nasarawa West; Sabi Aliyu, APC, Niger North; Danjuma Goje, APC, Gombe Central; Binta Garba, APC, Adamawa North and many others came in at 12:40pm to join those already seated thus giving more hope of imminent commencement of the occasion.

The august visitor, Ms Christine Lagarde, led her team in at 12:50pm, after which her host and Senate President, Bukola Saraki, entered to take his seat shortly after along with some principal officers of the Senate, including the Deputy Majority Leader, Ibn Bala Na’allah and the Deputy Majority Whip, Senator Adeyeye.

Exactly two minutes after Saraki entered the venue, and shortly after the less than two-minute introduction of guests, he began to address the audience, without first allowing the IMF chief to brief the house on her mission. He was very businesslike.

It took him exactly eight minutes to make his presentation, after which Lagarde immediately made hers.

At 2.12pm, the meeting formerly ended after which reporters and other guests at the event were asked to leave for a closed door session between the two parties to commence.

During the meeting, Saraki called on the Central Bank of Nigeria to relax its strict foreign exchange policy, noting that it was doing more harm to the economy than good. He insisted that the development had made small scale businesses to suffer unnecessarily. He called on the apex bank to introduce a more flexible foreign exchange regime and reduce the present restrictions on the autonomous market which does not allow business men to bring in foreign exchange or utilise what they have in their accounts as they dimmed fit.

Saraki then told Lagarde that “The IMF should support our CBN to bring in low interest loans to SMEs. We need to encourage entrepreneurs and make most of our new graduates job creators rather than job seekers. This is an area where we need the financial support and technical assistance of the IMF.”

He explained that his office has received numerous complaints from small business owners, complaining that their businesses are being threatened by the huge bottlenecks now involved in doing business.

On her part, the Managing Director of the IMF expressed concern over Nigeria’s debt profile, saying it was weighing heavily on the nation’s treasury with 35 kobo of every naira collected used for debt service.

While advising the Nigerian government to exercise caution in borrowing, Lagarde however observed that Nigeria’s debt profile was very low at 12 per cent of its gross domestic product, GDP.

She also urged the federal government to shore up its revenue drive by broadening the nation’s tax base and simultaneously reduce leakages by promoting compliance and enhance the efficiency of revenue collection.

Ms Lagarde also urged Lagarde also canvassed the need for Nigeria to eliminate the fuel subsidy, explaining that the subsidy regime was not only harmful to the planet but also not in the interest of the poor.

She said: “Indeed, fuel subsidies are hard to defend. Not only do they harm the planet, but they rarely help the poor. IMF research shows that more than 40 per cent of fuel price subsidies in developing countries accrue to the richest 20 per cent of households, while only seven per cent of the benefits go to the poorest 20 per cent.

“Moreover, the experience here in Nigeria of administering fuel subsidies suggests that it is time for a change—think of the regular accusations of corruption, and think of the many Nigerians who spend hours in queues trying to get gas so that they can go about their everyday business.

While analysing the current state of the Nigerian economy, Lagarde said the nation’s economic growth of 3.2 per cent in 2015 was the lowest since 1999, observing that it has the potential to record only a modest recovery in 2016.

She also observed that in the face of the drastic fall in global oil prices, Nigeria still has the responsibility of addressing its apparent infrastructural deficit.

“The outlook, however, has weakened. Growth in 2015 is estimated at about 3.2 percent—its slowest pace since 1999—and only a modest recovery is expected in 2016.

“For a country with a rapidly increasing population, this means almost no real economic growth in per capita terms.

Observing that Nigeria’s banks are well capitalised and more resilient than they were during the downturn of 2008 and 2009, Lagarde said the banks were “now beginning to feel the impact of the growing vulnerabilities in the corporate sector. This means rising non-performing loans, which will need to be carefully monitored and managed”.

She advised the Nigerian government to act with the resolve to significantly improve transportation networks as well as power generation, transmission and distribution, adding that Nigeria can be exporting tomato paste on a large scale, even as she lamented that instead of fostering export of commodities, Nigeria imports about half of its needs.
*By Jide Ajani, Emeka Anaeto, Umoru Henry, Levinus Nwabughiogu & Joseph Erunke – Vanguard

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