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Lamido Sanusi, governor from 2009 to 2014, told the Financial Times he was disappointed to see Mr Buhari’s strong security and anti-corruption efforts overshadowed by a monetary policy regime with “very obvious drawbacks that far outweigh its dubious benefits”.
As governor, Mr Sanusi won international acclaim for cleaning up Nigeria’s banking system and later blowing the whistle when billions of dollars in state revenues from oil sales went missing. He was suspended by Goodluck Jonathan, the former president, in 2014, shortly after his revelations and subsequently became emir of Kano, the second highest Islamic authority in the country.
The Central Bank of Nigeria, with Mr Buhari’s public endorsement, last year imposed tight capital controls and pegged the naira at an official rate currently 35 per cent stronger than the black market rate. The policies sparked capital flight and hurt Nigeria’s reputation as a frontier market investment destination.
“Unfortunately, because the exchange rate is right out there in front now, monetary policy is being seen as the barometer for broader economic thinking,” he said in at an interview at his palace. “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.”
Noting that the president had been dealt an extraordinarily difficult hand, he added: “There are no easy options and devaluation is a bitter pill.” During his own tenure as governor he had also resisted it. “But I had reserves of over $40bn and an oil price at over $110,” he said.
Oil prices have nearly halved since Mr Buhari took office eight months ago. At the time the treasury was heavily depleted following the failure of the state oil company to remit billions of dollars in oil revenues under his predecessor, who enjoyed a sustained boom in prices.
The country’s economic woes were now being exacerbated, Mr Sanusi argued, 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.”
The gap between the black market rate and the “artificial” official exchange rate would keep widening, Mr Sanusi predicted, until the bank adopted a more realistic policy or the price of oil climbed and dramatically increased reserves.
In a BBC interview aired on Friday Mr Buhari repeated that he would not devalue the naira, equating this to the “murder” of the currency. The emotive language suggests the president will hold tight to a view many observers see rooted in his experience as military ruler of Nigeria in the mid-1980s, when negotiations with the IMF foundered in part over his resistance to devaluing the currency.
Nigerians voted Mr Buhari into office last year largely because of his reputation for being tough on corruption and security. Mr Sanusi pointed to a number of early victories on these fronts: a military offensive had put Boko Haram insurgents, who have ravaged the north-east, on the back foot, and the president had begun root and branch reform of NNPC, the notoriously opaque state oil company.
“He has removed the wasteful and corrupt fuel subsidies. He has put an end to the [crude] swap regime which is also one side of rent-seeking and corruption?.?.?.?he has made the NNPC start producing accounts, so there is greater transparency.”
Mr Sanusi added: “These measures are good for the economy and display strong political will to change the system. But getting monetary and fiscal policies right will be crucial for broader progress in structural reform.”
Meanwhile, the president’s anti-corruption stance was “totally inconsistent” with the foreign exchange regime he supported, Mr Sanusi said, pointing to the arbitrage opportunities this had created.
“This encourages corruption and rent-seeking similar to the fuel subsidy regime” that enabled industrial scale theft of oil revenues under the previous government.
A more flexible exchange rate policy at this point was the “least bad option”. “We are hopeful that given all the other positive things done so far, policy will head broadly in the right direction and flexibility will come in down the line.”