25/01/2024
HIGH POINTS OF YEMI CARDOSO’S SPEECH AT THE LAUNCHING OF THE NIGERIAN ECONOMIC SUMMIT GROUP MACROECONOMIC OUTLOOK REPORT FOR 2024.
The inflation target for this year is 21%.
-Naira at N1300 to $1 is simply undervalued.
First off, CBN must come clear on what type of inflation it wants to consider for “inflation targeting”, core inflation, or headline inflation.
Inflation currently at 28.9% is unacceptable. The CBN governor says he is working to bring down inflation to around 21% before the year runs out.
Very possible, but as he rightly pointed out, it has to be “ a coordinated effort” with the fiscal team. Personally, right now, I do not see coordination nor do I see urgency from the fiscal team.
Major drivers of inflation in Nigeria today are currency instability, food prices, transportation costs, inefficient tax system, and government reckless debt monetization through “ways and means spending”.
For transportation inflation:- we continue to await the rollout of CNG buses promised by this administration since last year. I also believe digitization of transport fares can bring about more efficiency and competitiveness which will ultimately bring down transport costs.
For food inflation:- We need to open our border in the short term. All other alternatives and considerations won’t reduce food inflation this year.
Is the naira undervalued at N1300? In my humble opinion, YES.
The real question CBN must ask itself and find the answer to is “ Do we even have an efficient management system and forex market? An economy that allows the following;- > $20 billion flow out of the economy illicitly, > $20 billion sitting pretty in domiciliary accounts doing nothing and helping to fuel speculative activities, < 30% of forex inflows are captured through the official channel, e.t.c will never find the true price of it currency as the currency will be consistently subjected to the vagaries of speculative activities.
CBN in a bid to create an efficient forex market and management system wants to digitize forex transactions, collapse “most” unofficial channels like P2P and BDC into the official channel to increase supervision, access ALL forex inflow from oil production (NNPC and IOC will no longer deal with banks but directly with CBN for ALL forex transactions), enforce compliance by working closely with EFCC and NFIU (there will be a massive clamp down on street trading of forex), to mention a few.
Finally, should Dangote accept naira for the sale of refined products, coupled with PH refinery production and CBN clearing its debt, that will ultimately reduce the pressure on forex by as much as >40%. Even in the absence of further monetary tightening, this is expected to stabilize naira in the short term.
Summary:
Yemi Cardoso stressed the importance of coordinated efforts to combat inflation in Nigeria, highlighting drivers like currency instability.
He proposed measures, including opening borders to address food inflation, questioning the undervaluation of Naira at N1300, and suggesting forex reforms for stability, with the potential relief of Dangote accepting Naira for refined products.
