Sanusi, CBN and end of Tenure

Written by Africa Political & Economic Strategic Center (AFRIPOL)

Sanusi Lamido Sanusi, Executive Governor of Central Bank of Nigeria (CBN)
in next ten months will vacate his position as the chieftain of the
country’s apex bank. He showed no interest in asking for the renewal of
his job when the first term elapses in 2014.

Sanusi without a doubt has contributed to the macro-economic stability of
Nigeria. But he was without controversy, some of his undertakings were not
popular but he found strength, if not solace in the application of sound
monetary policy. With the monetary tool at his disposal he has managed to
maintain a fairly stable monetary policy. By lowering inflation, Sanusi
has striven and was able to maintain some-what decent price stability. A
reasonable price stability will be taken for what is it within the context
of Nigeria’s reality. By putting into consideration that Nigeria economy
is an importation orientated economy with oil as a major source of foreign
exchange must be acknowledged.

When Sanusi came in there was financial instability and liquidity crunch,
which was triggered by poor management especially on the failing banks
that were over laden with toxic debts. He was able to reform the failed
banks and re-capitalized them. Sanusi performed a delicate task of
infusing capital into the banking sector without overheating the economy.

Although he was successful with the fixing of the banks but the inflation
rate was not immediately suppressed. He promised to tame the inflation,
which became difficult, if not elusive to accomplish but he eventually
brought down inflation rate at less than ten percent as he earlier

The tightened of the monetary tools may have brought down the inflation
rate, but downside was the high interest rate that stood over 12 percent,
which is not something to write home about. High interest rate may be
attractive to investors in the capital market but it is not conducive for
sustainable economic growth. High interest rate do discourages borrowing
and that may dampen economic growth.

In reality with regards to an import and oil economy, the power of
monetary policy may be limited and even waned. The best possible paradigm
is to get the monetary and fiscal policies to be complementary. This is
where the intervention of the executive and legislative branches becomes
imperative. The complementary objective is to fashion out a pro-growth tax
policy and to build electric infrastructure to incentivize economic growth
and achieve an endurable macro-economic stability.

Emeka Chiakwelu, Analyst and Principal Policy Strategist at Afripol
Organization, said that, “Sanusi’s CBN have for a while been worried about
the increasing inflationary trend in the economy. To that effect the
country’s reserve bank has gone about it by raising the interest rate to
more 12 percent to combat rising inflation. Now in a split of second they
chose to rubbish their good work with this incoherent policy decision. By
printing a large denomination of naira notes, the value of the naira will
nosedive while inflation will gain momentum and that can be disastrous to
the economy. Sometimes, our policy makers especially those of them that
are making important financial decisions act like those that do not grasp
the fundamentals of monetary and macro economic theories. One cannot
quench a burning fire by throwing kerosene into it. How can you tame
inflation by application of tools that will make it worse than before? I
am totally disappointed with Central Bank of Nigeria.”

The answer to the economic problems may be found in the fiscal policy. The
executive and law makers must work together to implement policies that
could stimulate the economy and incentivize investors to infuse capital in
the economy. The tax policy that is favorable for investment and
repatriation of capitals are necessary to make the economy grow faster and
bountifully. Lower taxes and meaningful regulations are good to catalyze
the weak economic growth. .

Moderation in taxes and logical regulations with regards to fiscal policy
may open the door to a steady and faster economic growth. The provision of
durable infrastructures especially electricity and security hold the key
to a growing and sustainable economy.

Sanusi’s tenure was not all rosy; some of his signature achievements
including the introduction of Islamic banking was controversial. The
opponents of Islamic banking argued that Nigerian constitution is secular
and that the introduction of Islamic banking may reinforce sectarian
politics. But he never bogged down nor back down, he stood up and
judiciously defended the premise of Islamic banking in Nigeria.

Sanusi was quick to donate money to many organizations and institutions
does not sit well with many law makers who accused him for overreaching
and usurpation of the legislative power of the purse, the power to
appropriate funds. Many legislatures insisted that constitution that
guarantees CBN governor of independence must be taken away. But eventually
cool heads prevail and the constitution was not altered and CBN continues
to enjoy its independence.

Sanusi support for the removal of fuel subsidy was not universally
acceptable to most Nigerians especially the large chunk of the country’s
poor that are surviving with less than two dollars per day. The danger
they perceived in the removal of fuel subsidies were buttressed when the
removal was partially implemented. The prices of household products were
hiked up, transportation fares and kerosene prices were beyond the reach
of the average Nigerians. Even inflation rate was briefly higher than
anticipated and all these slowed down, if not muted the full
implementation of fuel subsidies removal.

In totality, Sanusi will leave behind a stable monetary policy but the
work of macro-economic stability is beyond the limited function of the
governor of Central Bank. When fiscal and monetary policy becomes
complimentary a more stable , successful and sustainable economy becomes
imminent and viable .

Africa Political & Economic Strategic Center (AFRIPOL) is foremost a
public policy center whose fundamental objective is to broaden the
parameters of public policy debates in Africa. To advocate, promote and
encourage free enterprise, democracy, sustainable green environment, human
rights, conflict resolutions, transparency and probity in Africa.

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