Forex policy: Buhari got it wrong –Sanusi

Former governor of the Central Bank of Nigeria (CBN) and current Emir of Kano, Muhammadu Sanusi II has faulted the foreign exchange policy of the Muhammadu Buhari-led administration which he said will likely exacerbate the country’s economic woes.

He stated that the action will undermine whatever gains the administration has made in the the areas of security and curbing corruption by endorsing exchange rate policies that are doomed to fail.

Sanusi, who held sway at the CBN between 2009 and 2014, in an interview with the Financial Times said he was disappointed to see Buhari’s strong security and anti-corruption efforts overshadowed by a monetary policy regime with “very obvious drawbacks that far outweigh its dubious benefits”.

The Central Bank of Nigeria, last year imposed tight capital controls and pegged the naira at an official rate currently 35 per cent stronger than the black market rate, and the president has repeatedly asserted, that he would not endorse official devaluing of the naira.

But Sanusi said that “Unfortunately, because the exchange rate is right out there in front now, monetary policy is being seen as the barometer for broader economic thinking. It is sad that on this one policy you get it so wrong that you risk taking away attention from everything else you are doing.”

He added, that “There are no easy options and devaluation is a bitter pill.” The former apex bank boss who had during his own tenure resisted devaluing the national currency, explained, that “I had reserves of over $40bn and an oil price at over $110”.

He further argued, that, the country’s economic woes were now being exacerbated, with the currency peg and restrictions in the foreign exchange market creating “a lot of speculative and precautionary demand”.

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Exporters and investors “are holding on to foreign currency, as no one would sell at the rate the government is setting”, while “the government does not have the reserves to keep the exchange rate at its official level in the market”, he said.

According to him, “These policies have been tried in different parts of the world and in this country before and they have just never worked. No matter what the stated intention behind them, they are wrong.

“These measures are good for the economy and display strong political will to change the system,” Sanusi said. “But getting monetary and fiscal policies right will be crucial for broader progress in structural reform.”

He also lamented, that the president’s anti-corruption stance was “totally inconsistent” with the foreign exchange regime he supported, pointing out the arbitrage opportunities this had created.

“This encourages corruption and rent-seeking similar to the fuel subsidy regime” that enabled industrial scale theft of oil revenues under the previous government.

“We are hopeful that given all the other positive things done so far, policy will head broadly in the right direction and flexibility will come in down the line”, he said.

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