Former central Bank of Nigeria, CBN Governor, Sanusi Lamido, has called on his successor to devalue the naira and warned that Africa’s biggest economy is in danger of a long term slump unless the government confronts slowing growth.
“Let’s stop being in denial, we cannot artificially hold up the currency,” Sanusi, now the Emir of Kano, Nigeria’s second-ranked Muslim leader, said in a speech he delivered on Thursday in Lagos broadcast on CNBC Africa. President Muhammadu Buhari “needs help on the economy,” he said. Buhari has said he opposes a weakening of the naira.
Under current Governor Godwin Emefiele, Nigeria’s central bank has curbed dollar funding since March, virtually fixing the exchange rate, even as other oil exporters from Russia to Colombia and Kazakhstan have let their currencies weaken. Nigeria derives two-thirds of government revenue and 90 percent of export earnings from sales of the commodity. Limiting access to dollars has stabilized the naira, which has closed at about 198-199 per dollar since declining about 8 percent in the first quarter.
The central bank’s rationing of hard currency and restrictions on foreign-exchange trading are hurting the economy, said Sanusi, 54. The economy expanded 2.35 percent on an annualized basis in the second quarter, the slowest pace since at least 2010.
“We are depriving certain key industries of imports,” he said. “If we have to make a choice between economic growth and a devaluation, my recommendation is that we protect growth.”
Monetary officials should lower the key interest rate from a record high of 13 percent to help stimulate the economy since the government lacks the funds to boost spending in the face of lower oil prices, Sanusi said. Nigeria is Africa’s top crude producer.
“The portfolio flows are gone,” he said. “Inflation is already upon us. You have fiscal consolidation. It is time to loosen monetary policy. Otherwise we compound an exchange rate crisis for businesses with high borrowing costs and declining demand.”
Portfolio investors have fled Nigeria, with foreign holdings of naira government bonds falling to less than 10 percent of the total from 27 percent in 2013, according to Standard Chartered Plc. Sanusi also called on the ministers who will serve in Buhari’s cabinet not to act like “courtiers.”
“I hope people will have the courage to know that loyalty is about telling your boss the truth,” he said. Buhari, who came to power in May, has nominated ministers, although he hasn’t publicly unveiled their portfolios, and the Senate has to approve the nominees.
Sanusi, who became governor in 2009, was suspended by former President Goodluck Jonathan in March 2014 after he accused the state oil company of withholding billions of dollars from the government.
He won praise from investors for cleaning up the banking sector after a crisis in 2009 and attracting more bond and stock investment from abroad.
“Lamido Sanusi, being an expert, has his ground for saying this,” Ibrahim Mu’azu, a spokesman for the central bank in the capital Abuja, said by phone. “The central bank may look into what he is saying.”