Sanusi Lamido's tenure as Central Bank Governor and monetary policy

CC Introspective

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

Sanusi's policies have without doubt contributed to the macro-economic stability of Nigeria's economy. But his tenure has been a contentious one as some of his undertakings have not gone down well with the "establishment."

However, with the monetary tool at his disposal, he has managed to maintain a fairly stable monetary policy. By lowering inflation, Sanusi established and was able to maintain much-needed price stability. A reasonable price stability will of course be taken for what it is within the context of Nigeria’s reality; considering the economy is largely an import-oriented economy with oil still a major source of foreign exchange. 

When Sanusi came in, there was financial instability and liquidity crunch, which was  triggered by poor management especially within the banking system (much of which was 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, the inflation rate was not immediately suppressed.

He promised to reduce inflation (a rather tall order in light of the pervading economic climate) but this was eventually accomplished with inflation rates ultimately at less than ten percent.

The tightening of monetary tools may have brought down the inflation rate, but the downside was the high interest rate that stood at over 12 percent. While high interest rates may be attractive to investors in the capital market, it is not conducive to sustainable economic growth as it tends to discourage borrowing and dampen over-all economic growth. 

In reality, with regard to an import-oriented and oil-based economy, the power of monetary policy may be limited and even unsustainable. The best possible paradigm is to get the monetary and fiscal policies to be at worst, complimentary. 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 while building requisite infrastructure, in order to engender economic growth and achieve desired macro-economic stability. 

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 help stimulate the economy and encourage investors to infuse capital into the economy. The tax policy that is favorable for investment and repatriation of capital are necessary to make the economy grow faster and maintain momentum. Lower taxes and meaningful regulations are also needed to help guard against economic regression.

Moderation in taxes and logical regulations with regard to fiscal policy may open the door to a steady and faster economic growth. The provision of durable infrastructure, especially electricity and security, also hold the key to sustainable economic growth.

Sanusi’s tenure was not all rosy; as some of his signature achievements including the introduction of Islamic banking were downright controversial. The opponents of Islamic banking argued that Nigeria's constitution is secular, hence the introduction of Islamic banking only serves to reinforce sectarian politics. But Sanusi stood his ground and judiciously defended the premise of Islamic banking in Nigeria.

Furthermore, Sanusi's support for the removal of fuel subsidies did not go down well with most Nigerians especially the large chunk of the country's poor who subsist on less than two dollars a day. The danger they perceived with the removal of the subsidies were confirmed when the removal was partially implemented. 

The prices of household products went up, transportation fares and prices of petroleum products went even further beyond the reach of the average Nigerian. Even inflation rates were briefly higher than anticipated and all these slowed down, if not muted  the full implementation of fuel subsidies removal. 

Sanusi will hope to leave behind a stable monetary policy although the work of macro-economic stability is beyond the limited function of the Central Bank Governor. When fiscal and monetary policy becomes complimentary, a more stable, successful and sustainable economy becomes the result.

The next few months of Sanusi's tenure as Central Bank Governor will ostensibly further solidify his legacy as he has always been his own person with a resolve and principled consistency never seen from someone in that position, however "controversial" some of his actions might be.