Meffy’s out, and Student Loans are in

Tinubu really did hit the ground running

Meffy is out

On the 9th of June, the President suspended the governor of the Central Bank of Nigeria. Currently, he is being detained by the Department of State Services. Although there is a lot to unpack from this event, we would unpack the “legacy” of the Central Bank Governor.

• The naira redesign. The intent behind this policy can be viewed as commendable. The CBN Governor stated that there was a lot of money in circulation in the economy that was not accounted for by the central bank and this was pushing inflation and hindering the effectiveness of some policies aimed at combating inflation in Nigeria. But the effect of the policy was a cash crunch in the economy. The Nigerian economy is not fully dependent on the cashless process and individuals who did not have access to digital platforms were left frustrated. Individuals and businesses felt the impact and it can even be seen in the Q1 GDP how much impact it had.

• Crypto ban. Although Emefiele was not the only Central Bank Governor skeptical about the workings of the crypto space, his directive to financial institutions to desist from transacting in and with entities dealing with cryptocurrency as well as close accounts of individuals and entities involved in cryptocurrency in Nigeria was a blow to the growing Web3.0 market. At that time, almost half of the Nigerian population according to a Bloomberg report held this digital asset and if this growing sector were properly managed and regulated appropriately, it would have aided the country’s growth.

• Ways and Means. This is a short-term channel through which the government borrows from the central bank and to prevent over-dependence on domestic loans from the CBN to the government, a cap was placed. This limit is 5%, the CBN is obligated not to lend more than 5% of public revenue but as of 2022, they had gone over the limit and the value stood at 411% of the budget. According to the CBN Act, this should have been repaid at the end of the fiscal year the advance was given but it’s June 2023 and payment has not been completed.

So what?

A central bank governor is an individual in charge of the monetary affairs of the nation. His duties are hinged on the macroeconomic and finance space of the nation. For such a person, the performance metric is seen clearly in the interest rate, inflation rate, exchange rate, etc. A comparison of what these were at the time he was appointed and now, would be a no-brainer to what his rating would be. 

In 2014, at the time of his appointment, the interest rate was at 16.58% (World Bank Data) and currently it is at 18.5%. While this may not seem like a huge increase, it is key to note that between 2019 and 2021, this rate was between the range of 11-14%. The current value makes the whole process of borrowing hard and expensive. While he argues that all this was done to curb inflation, it is noteworthy that increasing interest rate is not the only solution to reducing inflation in an economy

The next metric would be the inflation rate, at the time of his appointment inflation rate was at 8.06% (Macrotrends) but it currently stands at 22.22% (NBS). From a single-digit inflation rate to a double-digit inflation rate, it may then be arguable that the quick-fix method never worked. Also, a lot of structural factors are the propellers of our inflation and until those are fixed, the “theoretical” approach to reducing inflation would not reduce inflation

Then exchange rate; at the time of his appointment, the exchange rate for US dollars was at N175, it is currently at N462 (if you’re looking at the CBN rates but the black market is currently at N766). A series of devaluation and depreciation over the cause of 8 to 9 years are the reasons for this current value.

It is then on this metric that Emefiele’s performance may be scrutinized, policies executed and regulations over the cause of his tenure could also be fundamental but these key indicators show results that can be tracked and evaluated objectively.

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Student loans are in

On the 12th of June, the President, Bola Ahmed Tinubu signed the student loan bill. This law aims to provide easy access to higher education for Nigerians through interest-free loans from the Nigerian Education Bank. The loan covers only payment of tuition at public institutions (so if you were planning on using government money to go to a private school…sike) and does not have an extra charge to it, so all that would be paid would be the principal amount. The Act also brings to light the establishment of a bank known as “The Education Bank''. This Bank would have its head branch in the federal capital territory and branches in cities as deemed appropriate. This bank would handle the whole process of application down to the disbursement of these loans to qualified students. They would also be in charge of monitoring the academic records of individuals who are granted loans.

The conditions for applicants are that their income or that of their family be less than N500,000 and they bring two guarantors, who had to be one of each; civil servants not below level 12 or a lawyer with no less than 12 years post-call experience, a justice of the peace or a judicial officer.

So what?

This would not be the first time such a bill would be passed. Something similar to this was passed in the 1970s but was stopped due to the problems associated with the recovery of loan repayments. So the concern would be, to what end is the government ensuring that there would not be a repetition of past events? Yes, the bill has made provisions for loan repayments but the process must be rigid enough and lack loopholes that fault the system. There exists this cultural bias to defaulting on government loans because they are perceived by the citizens as “grants” or “concessional loans”. This should be explicitly debunked by the government, citizens who access these loans should be fully aware of its characteristics and repayment procedures. Secondly, the government would be funding the initial capital of the education bank. For a country in severe debt, would funding loans to a population, not credit-oriented be the appropriate decision? What would be the source for the “Education Fund”, would we borrow money to loan out?

Unlike the Western system where credit schemes (credit cards) are generally used, the Nigerian system does not have high usage of credit systems. So how open would the population be to these loans?

P.S: Uncle T is slowly revealing his economic team, national economic council and advisers. Let us know your thoughts on his decisions in the comment section <3

Our next digest will cover updates on the unification of exchange rates and you’ll also be hearing from us on the electricity act. Stay tuned readers!!