n chained down by macroeconomic instability arising from the excess fiscal deficits inherent in the mishandling of public sector oil export proceeds. Refusal to recognize the deficits officially till date does not matter: their poisoned fruits including the poor health of the national currency, the economic lifeblood, are not hidden.
After the
discontinuation of the Bretton Woods system of fixed exchange rates in 1971,
different countries experimented with various exchange rate fixing methods, but
by 1979 the managed float system (MFS) had gained widespread acceptance among
the world’s leading economies. However, the Nigerian authorities spurned the
MFS and have continued till date to experiment with a multiplity of methods
with some of them being tried and dropped only to be re-adopted and in turn
dropped again because of their unfavourable economic impact. The latest is the
Importers and Exporters segment exchange rate adopted in April 2017. The common
feature of all the ephemeral exchange rate mechanisms is the CBN’s tight hold
on Federation Account (FA) oil export proceeds, which have accounted for over
50 per cent of the annual budgets on paper since 1975.
Analytically,
to implement over a long time budgets in which realised non-oil revenue
amounted to under 50 per cent while the balance was made up of the mere foil
(so to speak) of the withheld FA oil proceeds would swathe the economy with the
characteristic features of excessive fiscal deficits as attested to by
persistent macroeconomic instability experienced down the years. Given the
unwillingness to stop withholding FA dollar allocations, the root cause of the
instability, the economy became enfeebled and gaspingly reached for the
International Monetary Fund/World Bank (the undertakers of poorly managed
economies) 15 years into experimentation with all manner of exchange rate
fixing mechanisms which focused economies had long jettisoned. The Bretton
Woods institutions grabbed the opportunity to position themselves as the unseen
hands behind the monetary and fiscal measures that were geared to
exploitatively dissipate the FA dollar accruals being withheld by the apex
bank. That was not surprising because the IMF/WB are two-faced and
double-dealing institutions: they take economically correct (and at worst
ambiguous) positions in the open but suborn behind the scenes implementation of
ruinous measures.
For example,
during the second coming of Obasanjo, the fiscal/monetary authorities made a
singsong of IMF/WB support. But when the WB was confronted that to withhold FA
dollar allocations and to simultaneously substitute in their place funds
furnished by the CBN not only amounted to harmful proportionate apex bank
deficit financing of the budgets of the tiers of government but also
contradicted economic best practice, the WB replied that the procedure was
improper. (The Opinion page of The Guardian of 23-24/6/2014 contains a
reproduction of the exchange). The response echoed the statement by the WB
President in Abuja in 2006 that the IMF/WB do not impose fiscal/monetary
reforms on countries as they possess the sovereign right to decide such
matters. However, the double-dealing IMF/WB had no qualms trampling on
Nigeria’s sovereignty in order to exploit the improper practice when they
imposed as conditionalities for the country’s external debt exit in 2006 the
re-adoption of the ruinous wholesale Dutch auction and release of part of
withheld FA dollar accruals to bureaux de change, a measure meant to undermine
the economy. The IMF/WB were also instrumental to CBN’s accumulation via the
Debt Management Office of a fake national domestic debt (NDD) made up of mopped
and sterilized excess liquidity funds. The NDD, which amounted to #12 trillion
last March, is largely responsible for raising the debt service to revenue
ratio to the unsustainable level of over 40 per cent.
Now, what
did the IMF/WB prescribe for the gasping Nigerian economy after 15 years of
disastrous experimentation with all sorts of exchange rate mechanisms discarded
elsewhere? It was Structural Adjustment Programme. According to Chapter 1 of
Adeyemi: Moving Nigeria Forward the Development Planning Approach (Second
Edition), SAP’s fiscal/monetary objectives inter alia were to drive
non-inflationary growth based on the naira’s true scarcity value under a regime
of curtailed fiscal deficits and a restrictive monetary policy. The promise of
SAP was ignored by government, which continued to drown the economy in
excessive fiscal deficits that were officially unrecognised. Surely, the
National Planning Commission will not controvert that the SAP prognosis was
economically correct and became imperative the very moment forex accrued
directly to government coffers and also that the naira remains scarce in
government’s multiple currency revenue basket even today. The true scarcity
value of the naira required to drive economic efficiency and productivity will
only emerge through a single forex market operated under the MFS. Such a forex
market necessitates the abandonment of withholding of FA dollar allocations and
their simultaneous replacement with apex bank deficit financing.
Pertinently,
in August 2007, then CBN governor confessed that both the naira and public
sector forex had not been (and are still not being) managed as obtained in
successful economies. Although he set a date for the takeoff of an embryonic
MFS to enable FA beneficiaries to convert dollar allocations in secure form to
non-inflationary naira revenue, he was browbeaten by the Presidency and
developed cold feet. Ten years on and with the withholding of FA dollar
allocations still firmly in place, consistently disappointing economic results
have led to frequent changes of fresh exchange rate fixing mechanisms. In the
past decade despite “CBN’s external reserves” peaking at over $62 billion just
as crude oil prices surged to over $100/barrel over a considerable period, the
naira has slid from 126/$1 to between 356/$1 and $500/$1; inflation rose to
over 16 percent; real sector operators have been priced out of bank credit
notwithstanding over 70 trillion of idle banking sector lending potential;
unemployment has kept rising with the absolute level now put at over 75 per
cent; the FGN domestic debt stock rose from #2 trillion in 2007 to #12 trillion
as earlier noted; debt service to revenue ratio at over 40 percent has become
unsustainable; all kinds of infrastructure dilapidated; and the GDP has declined
for five consecutive quarters by last March. Amazingly, selling of public
sector forex for largely unproductive use has become the CBN’s full
preoccupation.
Amidst all
this, it is not clear if the FA dollar-withholding Buhari administration and
the two-faced IMF/WB secretly struck the new game plan playing out in the
Federal Ministry of Finance and the Ministry of Budget and National Planning
(MBNP). To wit, unable to impose economic reforms on the Buhari administration,
the IMF through its 2017 Article IV Consultation on March 30 and again on
August 2 expressed fears that under unchanged fiscal/monetary policies, the
naira remained overvalued and that the 2017 fiscal year would barely post 0.8
percent growth rate that would not make a dent on the waxing unemployment rate.
The IMF therefore strongly recommended unification of the naira exchange rate
through a single forex market. But totally unmoved as if dancing to the beat of
the secret game plan, the FMF minister dug deeper and further adorned the existing
policies by securing approval of the Federal Executive Council in June to
refinance naira-denominated Treasury Bills into dollars at 7 per cent interest
in preference to domestic offerings that attract between 13 per cent and 18.5
per cent. The minister announced that the administration had decided to borrow
more offshore and less at home. The $3 billion to be realised from refinancing
the TBs and future external borrowings will be added to “CBN’s external
reserves” for dissipation in the segmented forex market windows. Presumably,
should the administration (present or future) fail to earn enough forex to
service and redeem the TBs and other external borrowings, the association of
dollar lenders (as with the previous external debt trap) would hire the IMF/WB
to garnishee government, impound its assets wherever they may be found on the
globe and formally re-colonise Nigeria. Does FEC approve? The FMF proposal is
not beneficial to the generality of Nigerians. The NASS should therefore
dismiss this negative solution to the country’s economic problems.
Similarly on
August 9, the FEC approved 2018-2020 Medium Term Expenditure Framework and
Fiscal Strategy Paper. With the exception of reducing the projected economic
growth rate in 2018 to 3.5 per cent, the MBNP left the Economic Recovery and
Growth Plan (ERGP) untouched. Given the gap between the planned ERGP indices
and segmented market naira exchange rates as well the levels of inflation and
lending rates eight months into the 2017 fiscal year, the MBNP minister does
not require a seer to tell him that the ERGP under existing policies cannot but
fail. Does FEC disagree?
The FEC
should note that the withholding of FA dollar accruals and experimentation with
numerous exchange rate fixing methods with the exception of the MFS in the last
46 years have produced laggardly and disastrous economic results. The FEC
should therefore demonstrate its love for Nigeria by adopting completely
painless fiscal and monetary reforms without further delay. The required step is
to direct the CBN to take immediate action and put in place a single forex
market using the managed float system in order to quickly establish the true
scarcity naira exchange rate as the IMF/WB intended in 1986. But the Bretton
Woods institutions did not propose anything extraordinary because, but for
interference by the federal executive arm, given the country’s multiple
currency revenue profile, faithful implementation of the provisions of the CBN
Act 2007 (or even any previous version of the Act down to the 1958 Ordinance)
would deliver the true scarcity naira exchange rate.
The expected
benefits of the recommended reforms include inflation rapidly sinking to 0-3
per cent, lending rates crashing to 5-7 per cent as in competitive economies,
the exchange rate staying stable, phenomenal increase in bank credit to the
economy, reinvigorated productive economic activity and achieving double digit
GDP growth rate. That is the basis for the economy to soar to a very great
height.
Source: Guardian
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