Nigerian govt
begins probe of NNPC over missing N8 trillion oil money, says CBN
The Central
Bank of Nigeria also called for the passage of the PIB. The Central Bank of
Nigeria, CBN, on Thursday confirmed that due to leakages in revenue accrual to
the Federal Government, as indicated by its governor, Sanusi Lamido the
Nigerian government has commissioned two different probes into the…
A massive
and clearly illegal multi-source funding of the federal government by the
Central Bank of Nigeria (CBN) could drag the Nigerian economy to its knees,
experts familiar with domestic monetary conditions and current happenings at
the CBN have warned.
The central
bank had, in the last one year, pumped trillions of naira in illegally
financing the federal government under different guises: from the mass purchase
of treasury bills to humongous direct financing of the government through the
“window account”.
Insiders say
the apex bank is “creating money” to “finance a government that is broke and
which does not have an economic vision,” in what one of them called a
“desperate move by the central bank governor, Godwin Emefiele, to remain in
office”.
A former
governor of the CBN and a former deputy governor of the bank who spoke with
PREMIUM TIMES were both alarmed by the long-term implications of such “direct
and reckless financing of government” on inflation and other economic indices,
including crowding-out the private sector from the domestic credit creation
process.
THE ALARMING
TRANSACTIONS
The warning
whistle was first blown at the last meeting of the CBN’s Monetary Policy
Committee, held between July 24 and 25.
In the
communique of the meeting published on Tuesday, members of the policy advisory
committee expressed “concern over the increasing fiscal deficit estimated at
N2.51 trillion in the first half of 2017 and the crowding out effect of high
government borrowing.”
Some members
of the committee, in their respective submissions captured in the 50-page
report of the meeting, expressed reservations over the apex bank’s handling of
key monetary and fiscal issues that may plunge the economy into a ditch.
However, it
was an external member of the committee, Adedoyin Salami, who directly painted
a gloomy picture of the extent of the government’s financing by the apex bank
and other irregularities.
[Adedoyin
Salami]
Mr. Salami,
an economist and faculty member with the Lagos Business School, literary took
the CBN to the cleaners in his assessment of its monetary policy which, he
warned, was pushing the country towards a serious economic crisis.
He
criticised CBN’s “massive injections of cash” to the government, accusing the
bank of serving as a “piggy bank” for the government, against its own rules.
“Monetary
data shows a sharp rise in the extent of CBN financing of the government
deficit,” he said.
From
December 2016, according to the economist, the CBN had variously made cash
available to the federal government running into trillions, mostly beyond legal
thresholds.
He said the
CBN’s claims on the federal government under the period amounts to N814bn,
which is “twentyfold higher” than what the law permits.
Ironically,
the claim of commercial banks, he said, “rose marginally by 0.4% to N4.6
trillion”.
Another
route through which the CBN pumped money to the government, Mr. Salami said,
was via the bank’s N454 billion spending on purchase of government’s treasury bills,
which he said, had risen by 30 percent.
The
government’s overdrafts from the apex bank also rose to N2.8 trillion within
the period, representing a five percent increase.
But the
sharpest rise in the figures, according to Mr. Salami, was in the government’s
“mirror account” liabilities, which rose “from N3 billion at the end of 2016 to
N1.5 trillion in April 2017”.
Authorities
at the CBN are yet to contradict Mr. Salami’s claims.
ILLEGALITIES
A look at
the CBN Act 2007 show that the huge direct financing of the federal government
is in direct contravention of clear provisions of the Act.
Although
Section 38 (1) of the Act empowers the bank to grant “temporary advances to the
Federal Government in respect of temporary deficiency of budget revenue”
subsection 2 of the same section stipulates, “the amount of such advances
outstanding shall not at any time exceed five percent of the previous year’s
actual revenue of the Federal Government”.
Additionally,
subsection three of the section provides that such advances should be paid “as
soon as possible and shall in any event be repayable by the end of the Federal
Government financial year in which they are granted and if such advances remain
unpaid at the end of the year, the power of the Bank to grant such further
advances in any subsequent years shall not be exercisable, unless the
outstanding advances have been repaid”.
By the
estimated N6 trillion earned by the government last year, the CBN should have
only granted advances to the federal government not exceeding N300 billion,
representing five percent of the earnings.
CONTRACTING
PRIVATE SECTOR
The conduct
of the government and the CBN, according to the economist, may, by limiting the
organized private sector’s access to credit, have contributed to the dire
straits in which the sector currently finds itself.
“We thus
find ourselves at a point where government borrowing from the CBN is
neutralized by raising the CRR of banks, thereby limiting private-sector access
to credit,” he said.
“In other
words, the private sector is deliberately “crowded-out”. It is ironic that the
government, in need of tax revenues – having in the 1st half of the year
accumulated its full-year deficit – is constraining the private sector from
which the sorely needed revenues are to be derived.”
Sounding
perplexed and perhaps frustrated, Mr. Salami said, “Whilst I still wonder what
the underlying economics is – I sincerely hope it works!”.
DESPERATE
MEASURES
To cushion
the impact of these mass and illegal financing of the federal government,
experts say, the CBN has been scrambling to evolve policies that would counter
the destructive effects of its actions.
Some of
these measures, PREMIUM TIMES understands, include the regular pumping of forex
into the foreign exchange market to cater for high demand due to the attendant
rise in naira liquidity.
The apex
bank, Mr. Salami said, also carries out “special auctions” to help normalise
banks’ Cash Reserve Ratios (CRR).
“To prevent
the effect of continuous and massive injections of cash to fund the Federal
Government showing up in sharply higher inflation and currency weakness, the
Central Bank now applies “special auctions,” Mr. Salami said.
Apart from
raising the CRR beyond the 22.5 percent approved rate, Mr. Salami said, “the
format of these “auctions” recall the dark days of “stabilization securities”.
Mr. Salami
also flayed the bank’s “seeming haste to declare “victory” for “fragile” improvements
in forex and inflationary statistics, saying the country is far from being out
of the woods in some of those areas.
He lamented
that “the most challenging of the present characteristics of the economy in
Nigeria is the adoption of a quantitative easing stance by the management of
the Central Bank”.
Another
member of the MPC, Abdul-Ganiyu Garba, also faulted CBN’s monetary policies,
accusing it of causing “contradiction or inconsistency problem”.
“The
coexistence of high interest rate and growth in money supply are unnatural.
Indeed, it generates a contradiction or inconsistency problem. Strong growth in
money supply in all countries that adopted quantitative easing pushed down
interest rates almost to zero,” he said.
Mr. Garba, a
professor, also indicted the bank for the significant distortions in “the forex
market, the money market, the stock market and domestic prices” due to “strong
growth in money supply in 2015 and 2016”.
A former
deputy governor of the CBN and well-regarded economist who spoke to PREMIUM
TIMES on condition of anonymity described the actions of the apex bank as
“reckless” and beyond the parameters set by law.
He accused
Mr. Emefiele of “hauling cash” to the government in contravention of the set
rules and statues of the apex bank.
“CBN
governor is a banker and adviser to the government,” he said. “The bank is a
monetary authority, not financial authority. Their role does not mean reckless
lending to the government,” he said.
According to
him, the government and the CBN “are setting the economy for a big fall”.
He said both
the government and the bank “need to take policy adjustment measures” if they
want to change the position of things, otherwise “they will continue to create
money which will lead to serious inflation”.
MORE
TROUBLES
Apart from
the huge advances, it is illegally taking from the CBN, the federal government
has also been ramping up a raft of local and foreign loans.
Another MPC
member, Suleiman Barau, also sounded a note of warning on the implications of the
payment of N760 billion as Paris Club refunds to states.
Mr. Barau, a
deputy governor of the CBN, added that the possibility of payment of more money
to states in the name of the refunds could further complicate economic
recovery.
“The whole
idea underlying the deployment of the fund is not completely bad as it could
stimulate growth in output in the long run.
“The
reality, however, is that the impact of this type of injection on aggregate
demand tends to precede the influence on aggregate supply and invariably stoke
inflation in the short run. Besides, there is evidence of growing liquidity
surfeit in the banking industry in the face of sluggish growth in credit
particularly to the private sector.
“It is not
unlikely that the current injection may complicate the liquidity surge with
potential adverse impact to the foreign exchange markets,” he explained.
CBN Governor
Godwin Emefiele
WAITING FOR
CBN
This
reporter’s efforts to reach CBN’s acting director of corporate communication,
Isaac Okoroafor, for comments. on Sunday, were unsuccessful.
He also did
not answer or return calls Monday morning. He, however, sent a text message
requesting an SMS inquiry.
But as at
the time of publishing this story, Mr. Okoroafor is yet to respond to the text
message inquiry sent to him.
OPTIMISTIC
EMEFIELE
However, in
his personal statement contained in the MPC meeting report, the CBN governor,
who is also chairman of the committee expressed cautious optimism on the
economy.
He also
acknowledged the effect of the government’s undue mopping of money from the
system, although in a subtle and passing manner.
Mr. Emefiele
noted: “The growth in government credits due to expanded fiscal operations
evokes the crowding-out of productive private sector in the short-run.
He, however,
expressed optimism that “if the government succeeds in reducing the
infrastructure deficit through its fiscal operation, I expect a favourable
crowding-in of the private sector in the medium- to long-term.”
The CBN
governor also blamed inflation and foreign exchange crisis on other factors
other than he and the CBN’s roles.
“As I had
noted earlier, the underlying deterrents include: foreign exchange scarcity
(due to low crude oil receipts and inadequately diversified economy);
constrained fiscal space; infrastructural bottlenecks; high energy prices; and
depressed domestic demand (partly attributable to sizeable salary arrears owed
to some civil servants),” he said.
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