The priceless gift to Nigeria

The priceless gift to Nigeria is to implement without stint sound fiscal and monetary policy measures as a means of ensuring the fruition of the country’s endowments. The Monetary Policy Committee at its 262nd meeting last month ignored reasoned entreaties in that regard as if it is afflicted by the apportioned ailment in the ancient saying, “Those the gods wish to destroy, they first make mad.“ This writer stated his role as MPC member-at-large out of patriotism in a two-part article titled “CBN off course despite 239 MPC meetings,” which was published by The Guardian on September 1-2, 2014. From the 239th MPC meeting, the first under the incumbent CBN governor, to the latest 262nd meeting, the economy has continued to pay escalating “Price of Improper Fiscal and Monetary Procedures,” which was carried by The Guardian on July 30, 2018.

The seeming marginal gesture of concession concerning issues raised in the September 2014 article was government’s near-100 per cent application of the Treasury Single Account. Even then, CBN has sidestepped the TSA by granting Federal Government overdrafts which are of similar magnitude to government deposits held in the apex bank. Such overdrafts are flawed (as the IMF Press Release of 7/3/18 confirms) because they neither reduce the public gross debt level nor mitigate the adverse economic impact and therefore countermand the TSA’s deficit – avoidance objective. Because the fiscal and monetary root problem has remained unaddressed, the routine slide of the naira yielded place to a steep 48 per cent devaluation from the 2014 and 2015 Appropriation Act exchange rate (AAR) of N160/US$1 to N305/$1 in 2016. Adduced reason? There was a drop in crude oil output compounded by falling international crude oil prices, but the CBN had to conjure up pro rata naira funds (substituted for diminished withheld Federation Account oil proceeds) that would match at least the personnel or recurrent budget.

Well, all that was avoidable were sound fiscal and monetary practices in place. Recall that beginning in the mid-1970s, the annual budget on paper has been predicated on substituted deficit financing tied to crude oil exports which average 2.0 million barrels per day (Mb/d). Among the repercussions was the de-industrialisation of the economy. From BP Statistical Review of World Energy, for example, in 2017 (47 years into the reign of improper fiscal and monetary procedures), Nigeria with a population of 190.8 million, produced 1.99 Mb/d or 3.8 barrels of crude oil per capita but consumed estimated 450,000 barrels per day or 0.9 barrel per capita (that year). But by comparison, France (65.0 million population consumed 1.6 Mb/d or 9.1 barrels per capita); Germany (82.1 million population consumed 2.45 Mb/d or 10.9 barrels per capita); and Japan (127.5 million population consumed 3.99 Mb/d or 11.4 barrels per capita). The above selected countries (each of which produces little or no crude oil) import and consume on average more crude oil than Nigeria produces. The indicated energy consumption figures excluded other fuel types. Energy consumption level is an indicator of intensity of productive economic activity. Had Nigeria consumed its entire crude oil output, the drop in crude oil prices would not have translated into the 2016 devaluation and attendant mass impoverisation. Worse still, from April 2017, CBN unilaterally fixed N360/$1 artificial exchange rate through the Importers’ and Exporters’ (I&E) forex market window representing 56 per cent ultra vires devaluation against the 2014 AAR. That CBN action, which earned the CBN governor a mocking Forbes award, merely enabled interlopers to milk the system.

However, to pay due attention to Nigeria’s long delayed economic success, the national currency should regain the primacy over which the erstwhile military regime allowed the alien dollar to trample beginning in 1971. The naira exchange rate should cease to be artificially set but be determined in a single forex market (SFM) while all monetary transactions including bank loans to individuals and firms should be executed and denominated in naira without fail. A sketch of the SFM was carried in The Guardian editorial of 23/10/17 titled “Implementing the budget as legislated” and also in this writer’s article captioned “FGN internally generated forex revenue” which was published by this newspaper on 21/3/16.

For the sake of elucidation, under the SFM, various inflows of foreign exchange should within a short time limit ( preferably 48 hours in order to forestall abuse) be transacted or converted to naira funds at a flexible exchange rate centred on the AAR based on the managed float system. The CBN Act-enshrined principal object “2(a) ensure monetary and price stability” delimits a stability band of AAR+/-3.0 per cent within which the naira should float in a fiscal year. It is mandatory for the CBN to implement this specific aspect of the budget and thereby provide the foundation for various sectors of the economy to achieve set goals.

Deposit money banks (DMBs) on their part should act strictly as minimal commission-earning forex brokers. They are required to channel available forex for sale/transaction/conversion via the SFM directly to either CBN limbo forex account for eligible transactions en route to final settlement of external commitments at due date or CBN domiciled FG-owned external reserves pool. So, except fresh forex inflows kept temporarily in domiciliary accounts with DMBs pending the lapse of the set time limit, the CBN is the sole depository (transient or permanent) of forex that flows into Nigeria.

Forex supply to the SFM would include CBN dollar account balance statements of Federation Account beneficiaries, dollar funds of international oil companies, remittances from Nigerians in the Diaspora, foreign direct investment funds, repatriated private sector export proceeds temporarily kept in domiciliary dollar accounts with DMBs, etc. Note exclusion of Nigerian-style foreign portfolio forex funds which, under the flawed CBN practices, are largely recycled forex held improperly and without time limit outside the vaults of the monetary authority. It creates avenue for aberrant forex holders particularly DMBs to impersonate foreign portfolio investors by deploying via proxies portions of dollar cash in their wrongful custody not only for multiple currency practices and dollarisation but also for routine transactions in the flawed forex market segments to raise funds for flighty short-term trading in the capital market on a mission to poach the country’s hard earned foreign exchange. A 48-hour limit for transaction/conversion of incoming forex will expose the rootlessness of the so-called foreign portfolio investors.
To be continued tomorrow.