Emefiele Defends CBN’s Unconventional Forex and Devt Financing Policy

• Says it has helped price stability, real output growth

Obinna Chima

The Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, has again justified the unconventional monetary policy approach the bank had adopted, particularly in forex market and development financing, saying it has helped to optimally balance the delicate objectives of price stability and real output growth.

Emefiele, spoke yesterday at the Distinguished Leadership Programme Lecture Series, titled: “Up against the Tide: Nigeria’s Heterodox Monetary Policy and the Bretton Woods Consensus,” which he delivered at the University of Ibadan, Oyo State.

The CBN governor explained that just like fiscal policy, monetary policy could, at a time when development challenges abound, complement the efforts of fiscal policy in employment generation, wealth creation and attainment of other growth objectives.  

The CBN governor told his audience that much of the successes the apex bank achieved in the past few years were partly due to the adoption of heterodox macroeconomic policies.

He highlighted countries such as the United States of America, Brazil, among others, that had to rely on unconventional monetary in times of economic difficulties to resuscitate growth.

“Within the CBN, our unconventional methods (especially in the management of the forex market and our development financing) supported by the orthodox approaches (in the form of our timely adjustments of monetary policy rate) have been able to optimally balance the delicate objectives of price stability and real output growth.

“We will continue to develop policy instruments and device ways of ensuring that an optimal mix of heterodox policies is continually deployed to engender the overall wellbeing and prosperity of the Nigerian economy. Our overall aim remains the concurrent attainment of price stability, real growth, full employment, and poverty reduction,” he added.

Emefiele, who recalled the challenges that confronted the Nigerian economy in 2016, when it slipped into recession as well as various initiatives and policies that were introduced to revive the economy, noted that in April 2017, the Investors and Exporters’ (I&E) window, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate played a vital role in this regard.

He further added: “In addition, exchange rate management was further liberalised following the operationalisation of the, ‘Revised Guidelines for the Operation of the Nigerian Inter-bank Foreign Exchange Market,’ in June 2016. The commencement of this policy guideline introduced the Naira Settled Foreign Exchange Futures Market.

“Relative to our peers, the favourable outcomes and strengthening outlook of the Nigerian economy is traceable to the timeous adoption on non-traditional policy methods. The CBN has been able to reduce inflation, build our forex reserves, maintained forex market stability, and foster real growth. Nonetheless, challenges still remain. The pace of population growth at about 2.6 per cent still outstrips real growth rate while inflation is outside our tolerance band. Unemployment rate and incidence of poverty remain at unacceptable levels.

“As many of us already know, balancing the objectives of price stability with output stabilisation, especially in the face of external headwinds, remains a challenge to monetary policy and central banks, particularly in emerging and developing economies. Since the global financial crisis, many central banks have begun to promote structural transformation and economic growth, beyond the singular mandate of price stability.

“Consequently, policy toolkits now contain instruments that are aimed at developing the financial sector, engendering wider financial inclusion, and aligning financial policies with sustainable development and growth.”

Emefiele, stressed that the development finance initiatives of the central bank was aimed at growth driving and employment generating sectors, which he said had equally not gone down well with the proponents of conventional monetary policy tools.

He, however, noted that critics of unconventional monetary policy had acknowledged that measures adopted by the CBN have had a positive impact on output and employment, “they assert that these tools constitute quasi-fiscal activities.”

Furthermore, he said: “In the view of some critics for instance, our forex policies constitute exchange restrictions, rationing of forex, discretionary allocation based on priority categories, and a multiple currency practice. Many are also unaccepting of our 41 items restriction and its recent increase to 43 items, regardless of its apparent successes.

“While there is sufficient evidence of significant reductions in our annual import bill, increased non-oil output and exports, and a robust Balance of Payment position, these critics assert that we are restricting trade and creating unfair competition. To our critics, who are against the imposition of the forex restrictions, conventional monetary policy requires that to encourage domestic production, we should impose higher tariffs and levies.

“However, our experience in Nigeria has shown that this practice has never worked due to certain inefficiencies in attaining these objectives.

“Our targeted focus on the agricultural and industrial sectors, were driven by the vast opportunities for growth in these sectors given our high population. It was also instrumental in taking Nigeria out of the recession. In 2017, over 50 per cent of the contributions to GDP growth came from the agriculture and industrial sectors.

“These sectors have the ability to absorb the growing labor pool of eligible workers in our effort to meet the household consumption needs of the Nigerian populace. If efforts were made to improve productivity gains in these sectors, it will reduce our dependence on imported items that could be produced in Nigeria.

“Furthermore, improved productivity in the agriculture and manufacturing could also help in reducing our dependence on proceeds from crude oil. In 2017, Nigeria’s total revenue from exports of crude oil was US$23 billion, relative to Indonesia, which earned close to US$22 billion from the export of palm oil in 2017.

“Nigeria has vast amounts of arable land that can be put to good use in the cultivation of not only palm oil but also cotton, cocoa, tomatoes and rice to mention a few. Supporting growth in the agriculture and industrial sectors is critical in our efforts to create a diversified wealth base for the country,” Emefiele explained.