After the Central Bank of Nigeria, CBN, Governor, Godwin Emefiele, was suspended over the weekend, Nigeria’s foreign debt increased, which will help the country’s new president follow through on his vow to change the monetary policy that has been credited with ruining Africa’s largest economy.
Godwin Emefiele was suspended by President Bola Tinubu after the markets closed on Friday, and detained by Nigeria’s state security service a day later for what were termed “investigative reasons.” In an acting role, Folashodun Shonubi, a deputy governor in charge of the bank’s operations, will take control.
The longest-dated dollar bonds issued by Nigeria rose to their highest level since January at the opening of trading on Monday, outperforming peers in other emerging markets. As of 8:05 a.m. in London, the price of the 2051-dated notes increased by almost 3 cents on the dollar to reach 73.42, the most increase since April.
According to analysts, Emefiele’s dismissal should result in stronger Nigerian bonds and maybe higher benchmark interest rates as foreign investors become more interested in the country’s assets. A multiple exchange rate system being abandoned will probably result in the naira’s devaluation.
“The market will receive the removal of Godwin as a positive development, as his unorthodox policies had become an impediment for Nigeria,” Ronak Gadhia, director of Sub-Saharan banks research at EFG Hermes, said by email. “His removal should be viewed as positive and could lead to increased risk appetite for Nigerian bonds and equities.”
“A more normalised and conventional” policy “should result in higher interest rates in the short term as the CBN attempts to rein in on inflation,” Gadhia added.
Investors, economists, and organisations like the World Bank had long criticized Emefiele’s policies, which included supporting the naira, limiting foreign exchange for dozens of imports, and emphasizing development finance. The government was also given a 22.7 trillion naira ($49 billion) loan by his central bank, which contributed to the nation’s record-high public debt of 77 trillion naira.
“This could spell the end of unorthodox and often conflicting and confusing monetary policies that held back economic growth and destroyed local and foreign investor confidence,” Ayodeji Dawodu, head of Africa sovereign and corporate credit research at BancTrust & Co in London, said by phone.
Emefiele was widely seen as acting in lockstep with the administration of Tinubu’s predecessor, Muhammadu Buhari. The previous government was perceived to be more statist and socialist in its approach, said Yemi Kale, chief economist for Nigeria at KPMG LLP and the nation’s former statistician general. “The markets will respond positively to an administration it believes to be more market oriented,” Kale said.
In his inaugural speech on May 29, Tinubu criticised the nation’s central bank and vowed to impose a single exchange rate system to “direct funds away from arbitrage into meaningful investment in the plants, equipment, and jobs that power the real economy.”
Under Emefiele, Nigeria’s central bank provided the US dollar to companies and people through a number of windows at closely controlled rates with limited liquidity. Many were compelled to turn to the illicit market, where the dollar traded more freely but at a price that was almost 60% more than the going rate.