The Central Bank of Nigeria (CBN) decided to settle $7.5 billion forex backlog owed to build investors confidence in the domestic economy and create lasting credibility for the country.
CBN Governor, Olayemi Cardoso disclosed this yesterday during the BusinessDay CEO Forum 2024 with theme: “Leadership In Tough Economic Times”, held in Lagos.
Speaking during the Fireside discussion, the CBN boss said he was advised against making the backlog clearance a priority at the inception of his tenure, because of the impact it will have on the country’s dollar position.
He said: “People thought, there was no need to prioritise the forex backlog clearance. But they failed to realise that the country was in a state of crisis, and loss of confidence. Even without that, it is important, that you hold high your integrity. As a bank, your yes, must be yes. That is a big major step in building credibility. It is very tempting to push that aside, but ultimately, I was convinced that if we did not do that at that time, we would pay the price as a country.”
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Findings also showed that clearing of the FX backlog improved the country’s outlook. Foreign investors as well as multilateral organizations such as the World Bank see this move as a bold intervention to improve the economy’s sustainability in the long run.
Speaking on the state of the naira, the CBN boss said that by the time he assumed leadership of the apex bank, the forex market was dominated by people who did not follow policy guidelines.
“When we assumed leadership at the CBN, we saw distortions from illicit flows, people not abiding by the rules, and it was very important we address that to make the market much better. We found pushback, as people who did things in a certain ways wanted to continue,” he said.
Cardoso said at that time, a good number of investors came in, left and returned after they understood the CBN’s plans.
He said a lot of the swings in the market are beginning to settle because investors have a better understanding of the Nigerian market place.
“It is important for those in the other side to recognise that we will continue with what we are doing. We believe that with time, stakeholders are becoming more comfortable with the way the market is being run,” he said.
On the CBN’s policy that mandated International Oil Companies (IOCs) on how to repatriate their funds, he said the policy had push back.
He said the there was dialogue between the apex bank and IOCs, adding that the reassurances calmed them down. He said that more forex contributions are being expected from the oil sector.
On why the CBN insisted that retained earnings should not be part of banks’ recapitalisation capital, Cardoso said it was the need to ensure that the exercise produces resilient banking system.
“As long as I can see, the banks had enough time to prepare for this. Two years was a long time. They should take their time, no need to be in any rush. We want to build a resilient banking system, and that’s not what you would like to do overnight,” he said.
He said the banks horizon has been expanded to accommodate different kinds of services. “We have no doubt that we must move to a more transparent system, in the banking industry, and the retained earnings exclusion will help achieve that,” he said.
Cardoso also spoke on the rising interest rate and impact on economic growth. According to him, the interest rate is not set by the CBN, but the MPC which comprise of independent minded thinking people.
“The MPC members are people who are not giving to emotion, but data. They go along with what the data say. The MPC has said their major target is to rein in inflation. We were all there when a lot of money got into the system. We saw the Ways and Means went into N27 trillion. We saw intervention funds stood at N10.5 trillion. These policies have their consequences,” he said.
He however, said that month-on-month inflation rate has dropped by 50 per cent and that remains a good signal for the economy. He said doing things right, will help the country to achieve its desired economic growth.
Speaking on the qualities that may have contributed toward his being made CBN governor, he said it is his commitment to policies that impact positively on the lives of the people.
“One particular thing is very dear to me. As a policy maker, I am very, very committed, to one thing, and that is that at the end of the day, we make policies that impact positively on the man on the street,” he said.
On his attitude to leadership, he said listening is very important to his leadership style. “I found that it is very important, to listen. Many of the CBN’s policies, came as a result of what people said. We identified some of the negative impact of the policies and acted accordingly to reverse such impacts.”
He further reiterated the importance of collaboration between the fiscal and monetary authorities.
“We found that it is so important, that as a CBN, we must collaborate with others. The collaboration in the fiscal side such as with the Ministry of Finance and Trade and Industry Ministry is key. We are also open, and transparent. Another is to open up discussions with the press and the Monetary Policy Committee meetings have been open to people who want to ask questions or contribute,” he said.
“Also, communication is important. Nobody needs to tell you that you need to come out there to talk to the people. We have continued to talk to the media, to give an idea on the way forward.