CBN faults The Economist

In from Ali Smart …

The Central Bank of Nigeria (CBN) has described as unwarranted the diatribe from The Economist magazine of London over its new policy regime on foreign exchange.

In the editorial by The Economist on Thursday under the heading: ‘Toothpick Alert’ they took Mr. Godwin Emefiele, the CBN governor to the cleaners.

In the article which reads in part, the magazine said: “Central bankers may talk in martial terms of defending currencies against bloodthirsty speculators, but they seldom suffer wounds more grievous than a bruising of their egos. They can, however, cause untold harm to economies, as the Central Bank of Nigeria is doing in puffing up its exchange rate.”

Expectedly, in a statement yesterday, the CBN said it “will do the little it can to protect the jobs and incomes of local farmers, using some of the same principles Western economies use to justify the protection of their farmers through huge subsidies.”

The CBN wondered why “should we keep allocating scarce FX to rice importers when vast amounts of paddy rice of comparable quality produced by poor hardworking local farmers across the rice belts of Nigeria are wasted, and farmers are falling deeper into poverty while we export their jobs and income to rice producing countries?”

It lamented that “decades ago, Nigeria was one of the world’s largest producers of palm oil but today we import nearly 600,000 Metric Tonnes while Indonesia and Malaysia combine to export over 90 percent of global demand.”

The CBN said it believes that Nigeria cannot attain its full potentials by importing anything and everything arguing that for far too long, “this trend has significantly weakened the operating capacities of our industries, but now is a good opportunity to begin a reversal.”

It would be recalled that the CBN had last week officially stopped the sale of dollars for a list of 40 items, in its quest to reduce the pressure on the Naira as well as preserve the country’s external reserves.

Read Also: No more forex for rice, private jets -CBN

The CBN took a swipe at The Economist by stressing that the London-based magazine was quick to deride its policy as lacking in economic foundations, whereas “it is the same principles upon which many other countries do not allow importation of certain products.”

The CBN said it believes that “the 48 per cent decline in oil prices may not be transitory and made bold policy changes including closure of the subsidised official FX Window, which resulted in a 22 per cent depreciation in the currency, the Naira.”

The argument, the CBN stressed, is hinged on the fact that “the Nigerian economy is heavily dependent on imports and the exchange rate pass-through to inflation is high, we believe that this adjustment is optimal at this time.”

The bank added that contrary to the article’s argument, “adjustments to a sharp decline in supply of US Dollars cannot all be borne by an indeterminate depreciation, without considering the full impact on the Nigerian economy.”

The apex bank demanded to know from The Economist if it believed the CBN should adjust to reflect the current parallel market rate, “why was this suggestion not made in the week following the inauguration of President Buhari when the same rate fell sharply to under N190 per Dollar? The CBN does not panic and will not take desperate measures to satisfy few misguided interests in the market.”

The CBN was angry that the article was “condescending to suggest that the list of items seemed ‘to have been drawn up by someone wandering around a house and a building site.’

It noted that like other oil-exporting countries, Nigeria is grappling with its share of the aftermath of the oil price decline and “despite this, our economic fundamentals remain strong. Inflation is still within the CBN’s single-digit band, the exchange rate has stabilised around N197 per US Dollar for the last five months, GDP expanded by four per cent in the first quarter of 2015, and 469,070 new jobs were created in the same quarter. With ingenuity and productiveness, we believe that Nigerians will seize this opportunity and use it for the greater good of the country.”

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The bank reminded The Economist that as Nigeria transitions into a new administration, it will continue to ensure policy stability at all times.”

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