A tenure of two halves

36 total views, no views today

A game of halves, a cliché among football commentators, is a good description of what to expect as Godwin Emefiele, Governor of the Central Bank of Nigeria, is re-appointed for another five years. Will his second-term be markedly different from the first term? Can his second-half be expected to be a game changer?

His re-appointment has been called a vote of confidence and guarantees stability. Is it also a signal of the economic agenda to expect from President Buhari? No doubt the President approves of the other interventionist policies of the CBN. Policies Emefiele has pursued to keep the naira stable. An achievement to his credit. But at what cost?

The re-appointment of Emefiele will calm the nerves of bondholders who have piled $6 billion into government bonds since February. It guarantees that the exchange rate will be stable as the CBN will continue to intervene in the Investors’ and Exporters’ foreign exchange window, which Emefiele established in 2017.

Maintaining multiple foreign exchange rates preserves the myth of a stable currency. An artificially strong currency favours the government; it undervalues the ball0oning debt it has incurred mostly to fund recurrent budget expenses such as salaries, and much less on human capital development and physical infrastructure.

Confidence, stability and continuity are good, but not the tenuous variety. Multiple exchange rates continue to distort economic decision making. It makes financing expensive for those who continue to invest and limits competition as only a few can get dollars at the official rate. Many companies have shut-down and thousands of jobs lost simply because of this.

Consequently, economic growth is slow, a good job is hard to find, consumer spending weak and credit tight as banks lend less these days, and, if they do at all it’s at outrageous … Read More...