Cardoso: Naira Undervalued, Seeks Fiscal Collaboration, Market Stability

•Vows far-reaching measures to tackle structural impediments to growth

•Argues economy at turning point

•Says collaborating with Ministry of Finance, NNPCL has improved FX repatriation to apex bank

•Expects stabilisation or reduction in fuel costs

•NESG to FG: embrace economic transformation agenda to stimulate economic growth

•Projects 3.5% GDP growth rate, 21.5% inflation, $40bn external reserves, N900/$ FX rate in 2024

James Emejo in Abuja, Nume Ekeghe, Dike Onwuamaeze and Ugo Aliogo in Lagos

Governor of Central Bank of Nigeria (CBN), Mr. Olayemi Cardoso, yesterday, said the naira was currently undervalued, contrary to suggestions that the local currency was overvalued.

Speaking at the unveiling of the Nigerian Economic Summit Group (NESG) 2024 Macroeconomic Outlook Report, in Lagos, Cardoso said the coordination between the fiscal and monetary authorities would produce a more balanced and stable exchange rate.

The CBN governor stated that the bank’s collaborative effort with the Ministry of Finance had ensured that all crude oil sales by the Nigerian National Petroleum Company Limited (NNPCL) were channelled through the central bank, in an attempt to improve and solidify the inflow of foreign exchange (FX) into the economy.

Cardoso said, “We believe that the naira is currently undervalued and, coupled with coordinated measures on the fiscal side, we will expedite genuine price discovery in the near term.”

The country’s creditors and credit ratings institutions, who believed the naira was overvalued, had repeatedly prevailed on the CBN to float the currency and allow it find its real value.

But the naira is now open to market forces, and the apex bank believes the national currency is undervalued.

Cardoso said inflationary pressures were expected to decline in 2024 due to CBN’s inflation-targeting policy, which aims to rein in inflation to 21.4 per cent. He said this would be aided by improved agricultural productivity and the easing of global supply chain pressures, which would benefit businesses by boosting consumer confidence and purchasing power.

He said the anticipated moderation in petrol prices due to the expected operational status of the country’s key government and privately-owned refineries in 2024 remained a pivotal factor in the economic equation.

Cardoso stated that the expected stabilisation or reduction in fuel costs would have far-reaching implications across various sectors, and contribute significantly to overall economic efficiency and resilience.

On the apex bank’s FX initiatives, Cardoso expressed satisfaction with CBN’s collaboration with the Ministry of Finance and NNPCL to ensure that all FX inflows were returned to the central bank. He stated that the coordinated effort would greatly enhance the bank’s FX flows and contribute to the accretion of reserves.

Cardoso added that the expected stability in the foreign exchange market for 2024 could be attributed to the reduction in petroleum product imports and the recent implementation of a market-determined exchange rate policy by the CBN.

According to him, “This reform is designed to streamline and unify multiple exchange rates, fostering transparency and reducing opportunities for arbitrage. The resulting consistent and stable exchange rate will not only boost investor confidence but also attract foreign investment, elevating Nigeria’s appeal to global investors.

“We are implementing a comprehensive strategy to improve liquidity in our FX markets in the short, medium, and long term. Our focus is on addressing fundamental issues that have hindered the effective operation of our markets over the years.

“Upholding the integrity of financial markets is crucial for building confidence. With the completion of an independent forensic review and the subsequent clearance of the backlog of valid FX transactions, we remain steadfast in our commitment to decisively address any infractions and abuses.”

Cardoso stressed that in the effort to stabilise the exchange rate, it was critical to prioritise transparency and create a market environment that enabled the fair determination of exchange rates, and ensured stability for businesses and individuals alike.

He stated that CBN’s adoption of the inflation-targeting framework involved clear communication, use of monetary policy instruments, and collaboration with fiscal authorities to achieve price stability, foster market confidence, and positively influence consumer behaviour.

The CBN governor stressed, “The outlook for decreasing inflation in 2024 will have a profound impact on businesses, providing a more predictable cost environment and potentially leading to lowered policy rates, stimulating investment, fuelling growth, and creating job opportunities.

“Additionally, the bank has reverted to the conventional monetary policy approach with a focus on attaining price stability, which fosters sustainable economic growth for Nigeria.”

Cardoso said the apex bank would vigorously address the various structural impediments to development by tackling institutional deficiencies, and restoring corporate governance in the financial system.

He said efforts were underway to strengthen regulations and implement prudent policies, adding that the CBN would be a reliable partner in fostering economic growth.

He also said the economy was currently at a turning point, explaining that bold reforms are underway across different segments of the economy.

Cardoso said the initial hardship experienced as a result of policy changes were ultimately directed towards addressing identified challenges in a sustainable manner.

The CBN governor further assured both domestic and foreign investors, and other stakeholders, that the economy would transition to a new state of stability in the short-to-medium term, “as we recalibrate our policy toolkits and implement far-reaching measures.”

He added, “I am confident that we are already witnessing positive outcomes, and these will undoubtedly become more apparent in the near future.

“The dedicated and relentless efforts being made are certain to bring about significant and positive changes for our economy.

“Indeed, recent reports from international rating agencies, such as Fitch, Moody’s, and commendations from multilateral banks, like, the World Bank reflect this, with upgrades to Nigeria’s ratings from stable to positive.”

Cardoso explained further, “These reports acknowledge the possible reversal of the deterioration in the country’s fiscal and external position due to the authorities’ reform efforts.

“While noting the painful adjustments, they all identify a direction of travel that will unlock the much-needed growth and development for our economy in the medium to long term.

“I am under no illusion that these commendations are reducing the price of rice in the market or the cost of FX that you need for your businesses or to pay your children’s school fees. These concerns will be addressed shortly.”

Commenting on the NESG Macroeconomic Outlook, Cardoso said the report emphasised the necessity of economic transformation. He said the central theme, “Economic Transformation Roadmap: Medium-Term Policy Priorities,” underscored the requirement for a clearly outlined roadmap comprising distinct, yet interconnected, phases and essential policy recommendations.

Cardoso said the new five-year Strategy for the Central Bank of Nigeria for the period 2024-2028, which was unveiled last week, provided a clear roadmap for achieving the bank’s mandates anchored on price stability and monetary policy effectiveness, robust and resilient financial system, as well as governance, compliance, and advisory to government.

He added, “These form the pillars around which all our actions and activities will revolve, enabling us to deliver on our mission ‘to ensure monetary, price and financial system stability as a catalyst for inclusive growth and sustainable economic development’.

“The work has already started, internally within the bank and across the banking industry, and we are committed to rebuilding an institution that is trusted and respected and promoting confidence in the economy.”

Cardoso stated, “Additionally, the NESG economic transformation roadmap delineates three distinct phases: Stabilisation, Consolidation, and Acceleration, with sequential steps and policy priorities aimed at fostering robust and sustainable economic transformation. The identification of potential ‘Inflection Points’ is crucial for strategic decision-making.

“This is also commendable, as I believe we are as a nation at the point of stabilisation. If the goals of the Stabilisation Phase are achieved, they will have a significant and immediate impact.

“This phase is focused on stabilising macroeconomic indicators such as inflation rate, GDP growth, fiscal balance, and exchange rate, which are essential for steering the country towards economic recovery and laying the groundwork for long-term economic transformation.”

Meanwhile, NESG called on the federal government to pursue an economic transformation agenda that would propel sustained high economic growth for the country.

In its macroeconomic outlook for 2024, Chief Executive Officer of NESG, Dr. Tayo Aduloju, said, “In the NESG Macroeconomic Outlook for 2024, we underscore the importance of the government pursuing an economic transformation agenda to propel sustained high economic growth.

“The report presents a roadmap with step-by-step and phased approaches to reforming the economy to achieve economic transformation over the short to medium term.

“This underscores the urgent responsibility of the government, necessitating unwavering efforts to drive economic transformation and establish the groundwork for a lasting economic evolution that aligns with the people’s aspirations and enhances their standard of living.”

Chief Economist of NESG, Dr. Olusegun Omisakin, who gave an insight into the outlook, said the report delved into the state of the Nigerian economy in 2023, and outlined a strategic plan for its transformation over the medium term.

Omisakin said the document was structured into three main parts, which offered an understanding of the current economic landscape, the proposed roadmap, and projections for 2024. He said the report laid the groundwork for understanding the context in which the proposed economic transformation roadmap would be implemented.

Omisakin stated, “By combining a thorough analysis of the current economic state, a strategic roadmap, and future projections, this report aims to guide policymakers, business leaders, and other stakeholders in steering the Nigerian economy towards a trajectory of stability, consolidation, and, ultimately, acceleration.”

He added that “Economic Transformation Roadmap: Medium-Term Policy Priorities” was broken into three phases, identified as the stabilisation, the consolidation and the acceleration phases that articulated the sequential steps and policy priorities for achieving a robust and sustainable economic transformation.

The NESG outlook for the Nigerian economy projected a real GDP growth of 3.50 per cent and an average inflation rate of 21.5 per cent in 2024, from an estimated average of 24.5 per cent in 2023.

It hinged its projections on the assumption of a global crude oil price averaging $90/barrel, notably higher than the proposed $77.96/barrel delineated in the 2024 budget.

It stated that stemming oil theft would boost the country’s crude oil production to 1.75 million barrels per day in 2024 while limited CBN’s intervention in the FX market would foster an increase in the country’s foreign reserves to approximately $40 billion by the close of 2024.

“Consequently, the official exchange rate is expected to reach N900/US$, signalling a positive trajectory,” NESG stated.

NESG also said Nigeria was currently at a crucial intersection that would demand bold and decisive actions to propel economic transformation and, therefore, called for a defined economic philosophy.

The report said, “The urgency of Nigeria’s economic transformation is not just a wish; it is an imperative to unlock the nation’s latent potential and ensure a prosperous future for all citizens.

“For the current administration steering the country, the year 2024 represents a transformative window, offering an opportunity to guide the nation towards an inclusive and resilient economic trajectory.

“Piloting the country through the economic transformation journey demands strategic planning and rigorous policy implementation on the one hand. On the other hand, substantial investments and unwavering commitment from the private sector will help to foster lasting and fair economic development.”

NESG stated that the stabilisation phase would be directed at addressing the instability of macroeconomic indicators, such as inflation rate, GDP growth, fiscal balance, and exchange rate, in order to steer the country towards economic recovery, which it said was “an essential starting point for the medium-term economic transformation journey”.

The consolidation phase would activate growth factors and enablers, including liberalisation reforms, institutional development and strengthening, policy and regulatory harmonisation, and investment promotion, while the   acceleration phase would outline imperatives for triggering long-term economic transformation, NESG stated.

It said, “Economic stabilisation is a foundational requirement for fostering sustainable economic growth. As evidenced by the development experiences of many countries, economic stabilisation establishes an environment conducive to enhanced productivity and propels rapid economic growth and social improvement.

“Therefore, a stable macroeconomic environment is a crucial starting point for attaining high investment levels and supporting infrastructure development, promoting job creation and improved living standards within an economy.”

The macroeconomic outlook stated, “The country needs at least a 7.5 percent annual growth rate to outpace population growth and address the backlog of prosperity due to sluggish growth in recent years.”

It added, “Achieving robust industrial and manufacturing sector growth at over 8.0 per cent annual growth rate would help attain this high economic growth.”

It also emphasised the need for massive job creation, saying it requires “substantial growth in the industrial and manufacturing sectors to drive industrialisation and create employment opportunities to address Nigeria’s unemployment issues”.

NESG further stated, “All sectors, not just industrial and manufacturing, should contribute to prosperity by achieving a minimum growth rate of 5.0 per cent.”