The recent pronouncements from Central Bank of Nigeria (CBN) Governor Olayemi Cardoso paint a cautiously optimistic picture of an economy beginning to respond positively to a series of significant financial sector reforms. While acknowledging the initial difficulties inherent in such overhauls, Cardoso points to tangible evidence of progress: a more stable exchange rate, stronger economic buffers, a welcome dip in inflation figures, increased participation from foreign investors, and an improved sovereign rating. These indicators suggest that the CBN’s steadfast commitment to orthodox monetary policy and comprehensive reforms is starting to yield fruit, offering a glimmer of hope amidst persistent global economic headwinds.
The past two years have been a period of considerable turbulence for the global economy, with the lingering effects of the COVID-19 pandemic compounded by the Russia-Ukraine war’s impact on energy and food prices, a surge in global inflation, and the subsequent tightening of monetary policy in advanced economies. Against this backdrop, the CBN’s proactive measures to strengthen Nigeria’s economic resilience are not only timely but also crucial for navigating these external shocks.
Upon assuming office in October 2023, Governor Cardoso’s leadership at the apex bank prioritized rebuilding Nigeria’s economic buffers. A key challenge inherited was a surging inflation rate, exceeding 30 percent, partly fueled by years of excessive money supply growth, which averaged around 13 percent annually while GDP growth stagnated at a mere 1.8 percent over the preceding eight years. This imbalance had also contributed significantly to the depreciation of the Naira, creating a climate of uncertainty for both households and businesses, eroding purchasing power and driving up the cost of living.
In response to this pressing challenge, the CBN adopted a decisive stance, raising the Monetary Policy Rate by a substantial 875 basis points to 27.5 percent in 2024. This bold move aimed to directly tackle inflation and restore macroeconomic stability.
Furthermore, the CBN confronted a significant backlog of over $7 billion in unfulfilled foreign exchange commitments and a fragmented exchange rate regime characterized by multiple rates, which fostered arbitrage and stifled much-needed foreign investment. This complex system had also contributed to the depletion of external reserves, which fell to $33.22 billion in December 2023. Recognizing the detrimental impact of this situation, the CBN undertook critical reforms to unify Nigeria’s exchange rate, eliminating distortions and fostering transparency.
This unification has been instrumental in clearing the outstanding foreign exchange obligations, providing a much-needed boost of confidence for businesses across various sectors, from manufacturing to aviation, allowing them to plan and invest with greater certainty.
To further enhance the functionality of the foreign exchange market, the CBN introduced the Electronic Foreign Exchange Matching System (EFEMS), a tool that has proven effective in other markets in promoting transparency and efficiency. These developments have not gone unnoticed by international rating agencies. Fitch Ratings recently revised Nigeria’s long-term foreign-currency issuer default rating (IDR) outlook from negative to stable, a significant vote of confidence in the ongoing reforms. Fitch explicitly lauded the government’s commitment to orthodox economic policies, including exchange rate liberalization, monetary policy tightening, the cessation of deficit monetization, and the removal of fuel subsidies, noting that these measures have improved policy coherence and credibility, reduced economic distortions, and enhanced resilience against persistent domestic and heightened external risks.
Beyond these core monetary policy and exchange rate management initiatives, the CBN has also taken strategic steps to enhance transparency and boost market confidence. The inauguration of the Nigeria Foreign Exchange Code (FX Code) in Abuja underscores the commitment to integrity, fairness, transparency, and efficiency within the foreign exchange market.
Built on six core principles – ethics, governance, execution, information sharing, risk management and compliance, as well as confirmation and settlement processes – the FX Code sets clear and enforceable standards for all market participants. Governor Cardoso emphasized that this marks a new era of compliance and accountability, with violations subject to penalties under existing legislation.
Complementing the FX Code is the introduction of the Electronic Foreign Exchange Matching System (EFEMS), designed to check forex market distortions, eliminate speculative activities, and instill transparency by offering real-time information on currency rates, trading volumes, and market activity.
Recognizing the crucial role of diaspora remittances in bolstering foreign exchange inflows and supporting Naira stability, the CBN has also introduced two new financial products specifically targeted at Nigerians living abroad: the Non-Resident Nigerian Ordinary Account and the Non-Resident Nigerian Investment Account.
These accounts aim to streamline remittances, encourage investments in Nigeria’s financial markets, and foster financial inclusion among Nigerians in the diaspora, providing a secure and efficient platform for managing funds and investing in the nation’s economic development.
These multifaceted efforts by the CBN, including granting licenses to new International Money Transfer Operators (IMTOs), implementing a willing buyer-willing seller model, and ensuring timely access to Naira liquidity for IMTOs, collectively signal a determined push towards economic stabilization and enhanced investor confidence. While the journey to sustained economic stability is ongoing and requires consistent effort and prudent management, the initial positive indicators suggest that the CBN’s reforms are indeed providing much-needed buffers and steering the Nigerian economy towards a more promising horizon.
The key now lies in sustaining this momentum and ensuring the consistent implementation of these policies to solidify these early gains and build a more resilient and prosperous future for Nigeria.
