Former governor of the Central Bank of Nigeria, CBN, now Emir of Kano, Alhaji Muhammad Sanusi II has criticized President Muhammadu Buhari’s endorsement of the CBN’s foreign exchange, forex, policy, arguing that policy encourages corruption.
Sanusi, who applauded Buhari’s removal of what he described as “wasteful and corrupt fuel subsidies”, contended that the current forex policy endorsed by the President encourages similar rent seeking and corruption which plagued the subsidy regime.
Disclosing this in an interview with Financial Times, he stated that Buhari “has put an end to the (crude) swap regime which is also one side of rent-seeking and corruption. He has made the NNPC start producing accounts, so there is greater transparency.
“These measures are good for the economy and display strong political will to change the system. But getting monetary and fiscal policies right will be crucial for broader progress in structural reform.”
The publication quoted Sanusi as saying that President Buhari’s anti-corruption stance was “totally inconsistent” with the forex regime he supported and that it “encourages corruption and rent-seeking similar to the fuel subsidy regime”.
He expressed dismay over the monetary policy regime which he said has “very obvious drawbacks that far outweigh its dubious benefits”.
“Unfortunately, because the exchange rate is right out there in front now, monetary policy is being seen as the barometer for broader economic thinking,” he said, adding that “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.”
On why he resisted the devaluation of Naira during his tenure as CBN governor, Sanusi said it was because the country at that time “had reserves of over $40bn and an oil price at over $110.”
While stating that there are no easy ways out of the current situation and that “devaluation is a bitter pill”, he noted 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”.
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”.
“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,” he said.
The gap between the black market rate and the “artificial” official exchange rate would keep widening until the bank adopted a more realistic policy or the price of oil climbed and dramatically increased reserves, he further said.
The former Central Banker maintained that a more flexible exchange rate policy at this point would be the “least bad option”, adding that “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.”