Central Bank of Nigeria Governor, Mr. Godwin Emefiele, in this interview on the sidelines of the International Monetary Fund/World Bank Spring Meetings addressed some of the concerns about the Nigerian economy that were noted by the multilateral institutions. Obinna Chima brings the excerpts:
The World Bank President during a media briefing expressed concerns about the Nigeria’s multiple exchange rate and that forex restriction is also affecting trade in the country, what do you have to say about that?
Let me say both the IMF and World Bank are our prime development partners and we have received support from them at different times in resolving some of our economic problems and challenges, particularly bothering on finance. Indeed, the IMF demonstrated that when in 2020, they made available the Rapid Financing Instrument (RFI) to all the countries that were affected by the pandemic and Nigeria benefitted to the tune of $3.4 billion. In 2021, realising that the pandemic was still on, we also received additional support from the IMF through the Special Drawing Rights and Nigeria received over $3 billion again. So, what I can say is that we have continued to receive support. And at our various meetings at the IMF, the resolutions have always been that countries, ministers and central bank governors should go back to their different countries and find home-grown solutions. Nigeria’s situation is very peculiar and that is the reason why we have continued to engage the IMF and World Bank to show understanding in our Nigeria’s challenges and they are indeed showing understanding.
When they raised the issue about the 43 items and the exchange rate, what they are saying is that the want us to free-float the exchange rate, and you do know that this has some impacts on the exchange rate itself in the sense that when you allow that to happen, you will have an uncontrollable spiral against the country’s exchange rate.
And what we are trying to do is to ensure that as long as we run a managed-float, there must be some intervention facilities put in place to really control the rate at which exchange rates spiral and we say that as long as the demand for foreign exchange rate exceeds supply, we would continue to have this challenge, but we are doing everything possible to deepen the economy and restructure the economic base of the country through some of the demand-management policies that we have put in place which they do not like. We have said that these are policies would be released, but we want to sure that we have been able to deepen the production base of Nigeria before we stop some of the interventions. I believe they would continue to raise these issues, but on our part, we would continue to make them understand the peculiar situations that Nigeria faces and how we need to work together to continue to see to the progress of the Nigerian economy. So, we cannot adopt what is being advised, which is to freely-float the currency because like I said, doing that would create exchange rate spiral. We have been on this since 1986. For instance, between 2015 and now, you would observe that we have adjusted the currency from about N155 to a dollar, to about N420 that it is today. So, we cannot be accused of not adjusting the currency. But we are trying to adopt a gradual approach towards adopting the price to the level that it is today. But while adjusting price, you must also do something about demand and supply. That is the reason we are saying we need to make sure that those things we can produce in the country, we restrict access to foreign exchange from it so as to encourage people to produce them locally. When that happens, what you would see is that the demand for forex would reduce and when it reduces, ultimately you would find that price would not rise beyond the expectation of Nigerians and I can say we are achieving that. Today, we have done a lot of interventions in rice, maize, and others. We have stopped the importation of rice, maize and with Dangote Refinery coming up, with the 650,000 barrels per day refinery, hopefully by the end of the year, that would also reduce the demand for forex that normally goes for the importation of petroleum products. I have often said that between the importation of refined products and the importation of rice, sugar and wheat, they consume close to about 40 per cent of the forex needed to fund imports in Nigeria. If by the end of this year, forex allocation to these items end, then we can see the exchange rate achieve more stability and by the time we achieve this, we would continue to engage more with the IMF and World Bank.
Another issue that was raised is that Nigeria needs to reconsider its policy on petrol subsidy, what do you have to say about that?
What I can say about subsidy is that when you find people talk about subsidy removal, I support it and also when you talk about holding on to the subsidy until the right time, we also support that. You would have heard the finance minister say that they decided to defer subsidy removal until maybe sometime next year, when we are sure that the Dangote Refinery has taken off. What does that mean? It means that we need to make it easy for people to buy petroleum products and pay in naira. Yes, you will find that the price may be a little bit higher, but it is going to be available because Dangote would buy the crude and that saves both the cost of transportation and logistics. So, we need to be a bit patient.
In the latest IMF’s World Economic Outlook, the multilateral institution particularly noted the increase in non-oil exports’ contribution to the country’s Gross Domestic Product (GDP), which has been the focus of the central bank for some time through its intervention scheme, do we expect to see more push in that area going forward?
I am happy that the IMF and World Bank are seeing the efforts to drive non-oil exports. Like I have always said, before now, we have always relied on earnings from crude oil and when earning from crude are not there, we begin to resort to foreign portfolio investments (FPIs) and foreign direct investments (FDIs). Yes, we would continue to need both FPIs and FDIs, but we need to increasingly look at how to improve non-oil exports, particularly through export proceeds and so on. I am happy that other people outside Nigeria are seeing this effort and this means we will continue to do more to ensure that we really deepen this and ensure that we fund imports with proceeds from exports in the country and with less reliance on the CBN.
Also, in the World Economic Outlook, the IMF advised central banks to consider tightening monetary policy curtail surging inflation, is that what you would be looking at?
I must say that in the last two years, the CBN has adopted price and monetary stability but that is conducive to growth. What does that mean? This means that generally we have been tightening, but again, in some priority sectors of the economy, like agriculture and manufacturing, we have adopted somewhat of accommodative monetary policy stance and this is why you could see that people can raise 10-year loans with two years moratorium at single-digit interest rate for agriculture and manufacturing. What we have sought to achieve with that is to see how we can adopt a more accommodative monetary policy to support those sectors so that they can grow, and that is why you can see that whereas we are doing everything possible to tighten and rein in inflation, we also adopting some accommodative policies on the other hand that would accelerate the growth of the Nigerian economy. That is why you can see that whereas inflation is coming down gradually, we are also seeing that the output, which is growth is increasing on the other hand, which is a good result for Nigeria, given that today, as a result of global challenges we face, the geo-political tensions between Russia and Ukraine, the main issues at these meetings are rising energy and commodity prices which had led to acceleration in the rate of inflation and at the same time dampening of growth globally, whereas Nigeria had been facing this and we have been dealing with it. So, I would imagine that this is a lesson that must be learnt from Nigeria, which is why I believe we must be commended for what we are doing.
So, there is no direct plan to maybe tighten monetary policy?
What I am saying is that we are tightening generally and that is why if you ask the banks today, they would tell you that we are really tightening monetary policy, but at same time, we are adopting some of accommodation to support the priority sectors of the economy.
There are allegations that some foreign airlines now charge airfares in dollars, are you aware of these?
I addressed this during the Easter holidays. Before I left the country, I read a release by the airlines and I called them to let them know it is illegal for them to charge foreign currency for tickets or businesses conducted in Nigeria because that would lead to the dollarisation of the economy and you would have seen that they have withdrawn that statement and they apologised for that. So, I urge people to continue their business and continue to procure their tickets in naira.
There are reports that rice farmers are still importing paddy rice, what can you say about that?
That is not true and absolutely, that is not true
What should we expect from you in the near future, especially at a time when the leadership of central banks globally are under scrutiny?
At the central bank we remain focused on our job and we are happy that we are playing our role in supporting the Nigerian economy. We have been on this since 2015, when inflation rate was almost at 19 per cent, it came down to almost about 11 per cent because of the increase in energy prices as well as electricity prices. It went up to almost 18 per cent again and we have managed to bring it down to below 16 per cent. I believe we would continue to rein in inflation. On the other hand, we are doing everything possible to support the fiscal authorities by putting in place facilities to support households, businesses and others at single-digit interest rate and that has helped in accelerating output and we feel delighted that even at this meetings, amongst other countries, the IMF has held a positive position about Nigeria’s growth prospect at 3.4 per cent and we believe that all things being equal we are going to surpass it. So, what we are doing is to continue to focus on our job and nothing more.