By Christian Ochiama and Bukola Idowu |
The year 2020 was one that no one predicted. It was supposed to be the year when Nigeria like most oil reliant economies recover fully from the recession occasioned by the crash in oil price in 2016. However, it was not to be so as the world was struck with the COVID-19 pandemic.
Unexpected as it was, it wreaked havoc on economies globally. Countries stood still as governments in major economies enforced lockdowns to curb the spread of the virus which up till date has been the primary cause of death of over two million people globally.
The lockdown had played up pre-existing vulnerabilities in financial systems which had been intensified in many economies, particularly for non-financial corporates, non-bank financial institutions and sovereign debt.
Since the last global financial crisis, new unsecure credit and debt structures have been building up. Private debt burdens have been soaring. High-frequency trading and algorithmic trading have become increasingly important. Exchange traded funds (ETFs) and portfolio trading have experienced rapid growth.
However, in a crisis situation, existing risks tend to become even more pronounced and the COVID-19 crisis had demonstrated that financial markets in their current form do not act as a firewall to avert economic downturns.
Central banks have had to step in to prevent large-scale insolvency by providing credit directly to large employers as well as to small and medium-sized businesses to enable them to maintain their business operations and retain their employees.
According to analysts, the developments brought about by the COVID-19 pandemic involve strongly complementary monetary and fiscal policy, but both as responses to COVID-19 and not the outcome of an emergent monetary-fiscal nexus.
For example the European Central Bank (ECB) had used a mix of unconventional monetary policy : In recent years, regular operations have been complemented by two liquidity-providing long-term refinancing operations in euro with a three-year maturity as well as by US dollar liquidity-providing operations.
The ECB’s Governing Council in April had decided to conduct a series of seven pandemic emergency longer-term refinancing operations (PELTRO) to provide liquidity support to the euro area financial system and ensure smooth money market conditions during the pandemic period.
There was also the targeted longer-term refinancing operations (TLTRO) which are Eurosystem operations that provide financing to credit institutions for periods of up to four years. They offer long-term funding at attractive conditions to banks in order to further ease private sector credit conditions and stimulate bank lending to the real economy.
The ECB also announced the Pandemic emergency purchase programme (PEPP) with an envelope of £750 billion. The temporary programme was designed as a response to the coronavirus emergency to address the unprecedented situation faced by the monetary union measures to reach price stability, according to its mandate.
Just like the ECB, the US Treasury and other central banks across the world had taken concrete steps to ensure that the effects of the COVID-19 pandemic on their economies are eased. We are citing these international measures to emphasize the policies put in place by the the Governor of Central Bank of Nigeria (CBN), Godwin Emefiele, to ensure that the country does not fall into a deeper recession.
The CBN,on his watch, has been bashed all around for its unconventional development finance polices made especially unpopular with its stance on foreign exchange restrictions. The governor in his argument in Favour of the unconventional policies of the bank said the approach, at a time when development challenges abound, is to complement the efforts of the fiscal authority in employment generation, wealth creation and attainment of other growth objectives.
By its mandate, the CBN is empowered to ensure monetary and price stability, issue legal tender currency, maintain external reserves to safeguard the international value of the legal tender currency, promote a sound financial system in Nigeria and act as Banker and provide economic and financial advice to the Federal Government.
It has however gone over and beyond these roles as it strives to ensure the stability of the nation’s economy which if destabilised could render monetary policies ineffective. In 2016, when CBN had to navigate the murky waters of harsh economic environment as part of its determination to get Nigeria out of recession as quickly as possible, with the country facing double digit inflation and negative growth for two consecutive quarters in addition to a low crude oil price, all of which placed more pressure on the value of the country’s currency, designed a number of development policies that seemed unconventional but were very effective in the short to medium term. One of these policies is his interventions in the agriculture sector. The Anchor Borrowers’ Programme (ABP) and other agribusiness interventions which have had immense positive impact on the economy.
With inflation now above 15 per cent, these same challenges have once again befallen the country, a situation made worse by the COVID-19 pandemic. Before now, Emefiele, had warned of the possibility of the economy sliding into recession again unless appropriate complementary measures were taken by the monetary and fiscal authorities.
As is the case with central banks in many top developing countries, focus is on promoting the process of economic growth. Central Banks in those climes ensure adequate monetary expansion in the country and provide funds for initiating investment in the public sector. This exactly is what the CBN, in recent times, has been doing in the critical sectors of the economy by taking up a direct and active role in financing development activities in Nigeria.
There is no gainsaying it that but for the efforts of the CBN Governor and his team, perhaps the Nigerian economy would have been neck deep into recession by now as economies even stronger than Nigeria’s economy have since buckled under the impact of the COVID-19.
In spite of the criticisms, the CBN has continued to carry out its traditional and non-traditional roles as is the case with Central Banks in developing economies. Despite the pressures on the country’s foreign reserves due to a huge fall in the monthly foreign earnings, aggravated by the COVID-19 pandemic, the CBN has kept the economy very much afloat.
To safeguard the naira and avoid further depletion in the country’s reserves, the CBN took a number of countervailing actions including the prioritization of the most critical needs for foreign exchange by restricting access to the Nigerian foreign exchange market for 43 items that can be produced in Nigeria.
More recently, it had issued circulars on diaspora remittances to deepen the foreign exchange market, provide more liquidity and create more transparency in the administration of Diaspora Remittances into Nigeria.
As against a situation whereby remittances sent in foreign exchange are received in Naira, the CBN had directed that beneficiaries of diaspora remittances through International Money Transfer Operators (IMTOs) receive such inflows in foreign currency through the designated bank of their choice with the option of receiving their funds in foreign currency cash or into their ordinary domiciliary account.
This policy had seen the value of the naira which had been down to N500 to the dollar immediately firm up and is now hovering around N475 to the dollar as it has now become much easier to access foreign exchange in the country.
In addition, these changes would help finance a future stream of investment opportunities for Nigerians in the Diaspora, while also guaranteeing that recipients of remittances would receive a market reflective exchange rate for their inflows. It had also instituted the remittance of export proceeds into the country thereby growing the supply of forex in the county.
Emefiele and his team have, in spurring the effort of the Federal Government to create jobs, have established several intervention programmes such as the Anchor Borrowers’ Programme (ABP), Commodity Development Initiative (CDI), the Youth Entrepreneurship Development Programme, Agribusiness/ Small and Medium Equity Investment Scheme (AGSMEIS), the National Collateral Registry (NCR) and lately the Creative Industry Financing Initiative (CIFI),
Also, the bank unveiled the framework for the implementation of Family Homes financing initiative; National Gas Expansion Programme; and Solar Connection Facility. Related to these, the CBN Governor had met severally with stakeholders in the value chains of not less than ten crops to discuss effective linkages and consider measures to increase domestic production of the relevant crops, in the attempt to attain self-sufficiency in the production of those crops.
The outcome of that was the establishment of the Anchor Borrowers’ Programme (ABP) with a view to collaborating with anchor companies involved in the production and processing of key agricultural commodities. The Programme is expected to assist local farmers increase production and supply of feedstock to processors, reduce importation and conserve Nigeria’s external reserves.
The efforts of the CBN has so far complemented those of the fiscal authorities to see that the wheel of the economy and continue to roll towards growth and development.