Emir of Kano and former CBN governor, Lamido Sanusi II, has said the Federal Government should end its policy of trying to maintain the value of the Naira.
According to Sanusi, the drawbacks of the policy “far outweigh its dubious benefits.” He stated that President Buhari risks undermining his progress in fighting Boko Haram and tackling corruption by endorsing exchange rate policies that are doomed to fail.
Speaking to Financial Times recently, he said:
“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 also acknowledged that the president had been dealt an extraordinarily difficult hand, saying, “There are no easy options and devaluation is a bitter pill.”
He also added;
“The government does not have the reserves to keep the exchange rate at its official level in the market, the policy has never worked wherever it has been tried.”
Sanusi said he resisted devaluation as CBN governor because he “had reserves of over $40bn and an oil price at over $110.”
The Emir lamented that the country’s economic woes are 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”, he said.
“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.”
Sanusi predicted that until the Central Bank adopts a more realistic policy or the price of oil climbs and dramatically increases reserves, the gap between the black market rate and the “artificial” official exchange rate would keep widening.
President Muhammadu Buhari had last week told the BBC that he was not convinced of the need to “murder” (devalue) the naira. The falling oil price has put pressure on his currency policy though.
The authorities are keeping the official Naira rate at around 200 to the US dollar, but the black market rate is closer to 300. The government relies on oil exports for vital foreign exchange and the declining price means there are fewer dollars in the country.
Government has imposed currency restrictions, and halted the importation of certain goods in order to stop dollars leaving the country, in an effort to sustain the policy.