Economy: Speaking the truth to power

At the National Defence College, Abuja, the other day, former Governor of Lagos State and National Leader of the ruling All Progressives Congress, Bola Tinubu, spoke inter alia: “We have to criticise ourselves when it is necessary, speak truth to power. We are the power.” His criticisms were that the inflation rate of over 18 per cent was unbearable; secondly, the fiscal and monetary policies did not mesh; thirdly, the tight monetary stance had left “no liquidity in the economy (thereby) making the banks to price out the ordinary man; fourthly, the trade policy facilitated cheap imports and so undermined the need for domestic industrialisation and economic diversification; and fifthly, the generous upfront 18 per cent interest payment on treasury bonds precluded the need “to have to work or do anything again.”

Tinubu therefore called on government to bring the economy urgently out of recession by “avoiding the nostrums of mainstream orthodoxy that say that government deficits are always bad. In the situation we face, deficit spending is essential to bolster aggregate demand and direct funds to projects that build infrastructure and bolster employment.” While Tinubu appears to harbour good intentions, the prescription that government resort to unmitigated deficit financing and spend its way out of recession will aggravate the economic problems that he sought to cure. This newspaper speaks truth about the economy to the three powers or arms of government all the time irrespective of the ruling party. The tragedy is that the federal and state administrations since 1999 have been playing the blind deaf-mute.

The abiding truth is that willfully faulty fiscal and monetary policies have rendered the economy chronically under-performing. Robust official growth figures are belied by their non-inclusiveness and the rise of the absolute poverty level from 20 per cent in 1960 to over 70 per cent today. But by precipitating the present economic recession, the Buhari administration fortuitously removed the façade of make-believe economic growth. Now that the prevailing economic hardship has compelled some leaders to speak out quite belatedly, it is apposite to shine light yet again on the real economic truth in the hope that the APC administration will stop feigning ignorance of the facts which have been constantly publicised since October 2001 and take the first essential step toward salvaging the economy.

Five days before Tinubu spoke, a former super Permanent Secretary, Philip Asiodu expressed dissatisfaction with “failure over the past four decades to exploit Nigeria’s varied and enormous resource (and human) endowments to achieve rapid economic and social development and to create wealth for our teeming population.” He blamed the lack of economic development and industrialisation on the abandonment of the Third National Development Plan (1975-80), the principle and discipline of planning as well as the purge of about 10,000 officials countrywide by the Murtala-Obasanjo administration. He explained that plan discipline required the application of funds and other resources for the implementation of predetermined priorities and projects set out in the plan. He referred to subsequent plans which were largely unimplemented such as the Fourth National Development Plan (1981-85), rolling plans (1984-99), Vision 2010 (which was not launched), Vision 20:2020 (Transformation Agenda) (2011-15), Medium Term Expenditure Plans (2010-13) and (2014-17) to which must be added NEEDS 1 (2004-08) and NEEDS 2 (2009-11).

The reason for the serial failure of attempts at implementing national plans stands out in the first Abuja Development Policy Centre Annual September Lecture series delivered by the then CBN Governor Joseph Sanusi in 2001. He declared that even “the oil boom era (1970-79) was characterised by fiscal dominance and severe macroeconomic imbalance. The main expansionary factor was the monetisation of foreign exchange receipts from crude oil exports… The absence of a mechanism for sterilising the proceeds of excess earnings from crude oil exports resulted in inflationary pressures with rate reaching 33.9 per cent in 1975 up from 13.4 per cent of the preceding year… Sustainable economic development depends not only on good planning and sound investment decisions but also on the establishment and maintenance of a sound financial system and prudent macroeconomic management that will promote domestic price stability and external sector viability as well as enhance efficiency in resource allocation.”

The above excerpt provides the cause of the country’s economic under-performance. After the demise of the Bretton Woods system of fixed exchange rates in 1971, the then military regime under which Asiodu was a prominent actor, wrongly directed the CBN to withhold public sector oil proceeds and release printed naira equivalent for budgetary spending by the tiers of government thereby causing excess liquidity upon every disbursement of the Federation Account. The economic truth is that by that procedure, the oil proceeds were not monetised via proper conversion to oil-derived naira revenue but were substituted with CBN proportionate deficit financing of the budgets of the tiers of government. The sharp increase in inflation in 1975 reflects the fact that oil proceeds on paper exceeded non-oil revenue for the first time that year. The wrongful swapping of CBN’s proportionate deficit financing for withheld FA dollar allocations still continues just as macroeconomic imbalance hallmarked by persistent excess liquidity remains the characteristic economic feature. No wonder the constantly changing national plans are not successfully implemented.

Ordinarily, a central bank could set sufficiently high cash reserve and liquidity ratios coupled with nominal interest rates to tackle excess liquidity. But the CBN bemoaned the absence of a mechanism to sterilise the excess funds. The opportunistic sponsors of the World Bank/IMF exploited the obvious knowledge gap by seconding Ngozi Okonjo-Iweala to the Federal Ministry of Finance to create the Debt Management Office. The servicing cost alone of the resulting National Domestic Debt will consume the expected receipts from company income tax, value added tax, Customs and Excise duties and loot recoveries under the 2017 budget proposals. As at end-June 2016 the FG Domestic Debt stood at N11 trillion, 45 per cent higher than the proposed 2017 budget. No portion of the debt stock was either deployed for recurrent expenditure or invested in capital projects. It represents mopped and sterilised excess liquidity fund attributable to CBN’s proportionate deficit financing of the tiers of government in replacement of withheld FA dollar allocations since 2003 alone. Instead of canvassing for fresh deficit spending with additional cost implications, Tinubu should ask government to start utilising this humongous and fake debt stock to settle any outstanding arrears being owed and to finance new capital projects. But the economic impact would be shattering escalation of inflation. As a matter of fact, this fake national debt should be cancelled by presidential executive order and government revenue should go to genuine projects.

Furthermore, Tinubu’s rhetorical question whether there is need to work or do anything again when instruments of the fake Federal Government domestic debt fetch 18 per cent interest upfront is equally applicable to the forex market. The CBN has forsaken the role of naira monopolist. When it rations and auctions withheld FA dollar allocations, the apex bank at once makes the alien dollar the superior currency in breach of the CBN Act 2007 and the 1999 Constitution just as it acts as dollar speculator intent on making “profit” from depreciating the naira and thereby spurs unbridled currency speculation at the expense of real production. The exchange gain component of FA allocations denotes money illusion that engenders national impoverishment. For the CBN, this particular course of action amounts to institutional suicide: the apex bank is central bank only in name today.

The existence of domiciliary dollar accounts (DDA) without any time limit means the country unconstitutionally operates dual currency system in which the naira is put at a disadvantage. For example, any hoards of dollars kept by the CBN as speculator, DMBs, DDA holders, bureaux de change and other speculators before June 20, 2016, today gain “naira profit” of 55-156 per cent depending on the segment of the forex market. Also in the rank of currency speculators are impostors pretending to be the source of foreign investment by deploying illegally hoarded forex belonging to Nigeria for the oversubscription of any Eurobonds and foreign loan raised by the FG in order to establish claim corruptly to public sector forex earnings. The myopically commit “naira-cide” and actively destroy the economy in order to feast on the carrion.

All the noted kinks are just some of the poisonous fruits borne by the improper withholding of public sector dollar proceeds over the past 46 years. The mistake of 1971 has to stop for the economy to become repairable. The naira remains the sole legal tender currency for lawful transactions in the country. So all private sector forex earnings including lodgments in DDAs should be transacted or converted within a very short time limit to naira funds via a single forex market (SFM) that employs the manage float system based on the Appropriation Act exchange rate.

DMBs operate the SFM. Public sector forex receipts should also be converted through the SFM to meet domestic payment needs. Forex should flow directly from the supply source via the SFM to eligible end-user-specific demand at the market-determined price in the manner securities are bought and sold in the stock market. DMBs should earn a commission set by the CBN from the seller and buyer of forex. Surplus forex after satisfying any day’s demand should be sold in the last resort to the CBN at the market-determined price on a day-to-day basis for accumulation of FG-owned external reserves. The Ministry of Budget and National Planning should draw up and regularly update list of eligible imports subject to the objectives of protecting domestic agricultural production, promoting domestic industrialisation, boasting the invisible services sector and growing FG external reserves. All imports should be channeled and be paid for through the banks.

As this newspaper has said several times before, whereas the mistake of 1971 has brought about persistent excess liquidity, high inflation, depreciation that often graduated to devaluation with their adverse accompaniments, participation of the tiers of government in the SFM signifies proper monetisation of FA oil proceeds, firms the naira, trims money supply, keeps inflation within 0-3 per cent and produces sustained macroeconomic stability. Such an outcome supports accommodative monetary policy stance anchored on a low corridorless monetary policy rate that would dictate 5-7 per cent lending rates across the board thus leaving the banks, for the sake of their own survival, with no choice but to extend ample credit to the real sector and accord small businesses necessary hearing. The end result will be extensive economic diversification.

Additionally, in such conducive environment and given efficient project execution capacity, the Federal Government may indulge in enhanced fiscal deficit spending provided the fiscal deficit level incurred outside the safe limit of 3 per cent of GDP is matched by the achieved national economic growth rate so as to avoid deleterious inflationary pressures.

Finally, no matter the price level of petroleum exports, until the naira (exchange rate), the economic lifeblood, is managed as sketched above, the economy will unavoidably remain wobbly and benefit only a handful of Nigerians.