CBN’s pragmatic policy on forex control

The exclusion of 40 items from the interbank foreign exchange market by CBN is pragmatic and should be applauded by well meaning Nigerians and friends of Nigeria. Pragmatism is to think about solving a problem in a practical and sensible way rather than by having fixed ideas, theories and ideologies. It is about adjusting to unfolding reali­ties in a dynamic and changing world. The excluded items include tooth­pick, palm kernel/ palm oil products, margarine, cement, rice, private jets, among others. With the policy, import­ers of the items would have to source foreign exchange from private sourc­es. It was necessitated by the need to preserve our foreign reserves and en­courage local production. Since Janu­ary this year, CBN has spent around
US$5billion defending the naira which has been under pressure, with an av­erage of N1.3trillion spent on imports annually, including items that could be produced locally. A total of N100bil­lion was expended on the importation of toothpicks, milk and furniture in the first quarter of 2015.
The CBN policy is interventionist and in line with global best practices, which has witnessed Central banks extend their scope of operation beyond price and mon­etary stability to address critical devel­opments in the economy. In US, UK and France, Central banks support selected economic sectors using ‘’direct meth­ods’’ of intervention. Virtually all central banks, including the Bank of England (BOE) and the US Federal Reserve (the Fed) have used direct means to support economic sectors. In his maiden address, CBN governor, Godwin Emefiele noted that ‘’the vision of the Central Bank of Nigeria is to be a model Central Bank de­livering price and financial stability and promoting sustainable development’’, adding ‘’this vision draws inspiration from our understanding of the multiple mandate of the Bank to pursue both price and financial system stability as well as provide complimentary developmental functions by creating an environment for Nigerians to live better and more fulfilled lives’’.
The new policy aligns with the infant industry argument which if sustained will lead to increase in domestic employ­ment, all things being equal. The rate of unemployment is worrisome. The reason Nigeria is still enjoying relative peace despite the growing army of unemployed youths is because, sociologically, we are an overly optimistic people. As such are not ‘’short-circuited’’ and do not have the propensity for revolution despite the pauperization and subjugation occasioned by bad leadership. But this should not be taken for granted as we may not be able to determine the threshold. All hands need to be on deck to arrest the monster of un­employment. The Federal government should compliment and synergize with CBN through the evolution of an Eco­nomic Action Plan that will favour local production, employment, be protective of the poor and weak in the society and gen­erally be responsive to citizens’ need. Ni­geria is expected to be among the top 20 economies in the world with a minimum GDP of N144trillion (US$900billion) and a GDP per capita income of no less than N640,000 (US$4,000) per annum by 2020. The priority areas to achieve this target include real sector development, infrastructure, human capital develop­ment and governance.
Though the CBN policy has elicited di­verse reactions and drew flaks from some quarters, including the once upon a time influential magazine- ‘’The Economist’’ of UK, it should be seen in its proper per­spective of the targeted objectives vis-a vis the structure and anomaly of the Nige­rian economy. The structure of the econo­my is faulty because it is heavily import-dependent just as it is characterized by an anomalous growth pattern. For seven years GDP grew consistently at the rate of 7 per cent but unemployment rose to 23.9 per cent in 2012 relative to 13.9 per cent in 2000. The anomalous growth pat­tern is distressful to the economy. It stunts both the emergence of the middle class, the operating dynamo of the economy and inter-generational mobility just as it poses a threat to political stability and national security. The best economic policies for Nigeria are those that will encourage en­trepreneurship and local production, in­crease employment, stimulate investment in securities, promote economic develop­ment, reduce the misery index to engen­der a virtous cycle of prosperity.
There could be some latent functions or unintended consequences of the CBN pol­icy such as have been suggested by some analysts, but it is believed the policy will be subjected to evaluation, and strategic adjustments if need be. As Emefiele had noted, ‘’CBN will impose proper moni­toring and performance measures of its policies in order to ensure that the goals of increased employment and poverty re­duction are attained’’.
The governor has communicated a resolve to make a change for the better and thus far, he is on course. CBN, has in the past ten years consistently evolved policy measures that engendered financial system and macroeconomic stability and initiatives that support small and medium scale enterprises-the engines of economic growth.
Source: sunnewsonline.com