2022-24 MTFF/FSP and Nigeria’s dithering economy – Part 3
And so the poisoned fruits of the military legacy of heterodox fiscal and monetary procedures, depending on prevailing economic circumstances, have become discernible with time. They are to (i) collusively dissipate the WFAD by all manner of subterfuge to progressively weaken the naira and undermine the economy. External loans do have unfavourable strings attached. But any part of the loans released through the CBN is treated like WFAD; (ii) pile up sterilised excess liquidity-based treasury bills/bonds which constitute the bulk of the national domestic debt; (iii) covert part of the high interest rate domestic debt to relatively low interest dollar debt; and (iv) channel dollars wangled from WFAD to domiciliary dollar accounts and Eurobond. Consequent upon maturity of those treasury-looting devices, Federal Governments that emerge, going forward, are held in naira and dollar debt peonage by a vampire clique of successive ex-political leaderships (both military and civilian and foreign accomplices) along with colluding hirelings manning various government institutions. What a shame on Nigeria, the most populous black country!
Twenty-two years into the democratic dispensation, the NASS has looked on absent-mindedly while the FMFBNP and CBN continue with the military coup-mindset legacy of flouting the guiding mandates contained in the Fiscal Responsibility Act 2007, the annual Appropriation Act and the Central Bank of Nigeria Act 2007. For example, Section 16 of the CBN Act providing for determining the naira exchange rate does not envisage a situation whereby the CBN governor would arbitrarily set up improper segments, nay, distributorships of NAFEX, I&E, BDC, SME, etc to be handed WFAD at artificial or ultra vires devalued rates which leave the naira progressively weakened, the economy correspondingly hamstrung and the majority of Nigerians pauperized. CBN’s perversion and abject misconception of fixing the naira exchange rate show in construing the devalued segment rates as premium or gain or profit. To be sure, the CBN’s illegal hold on WFAD does not translate into monopoly ownership of forex in the system. But CBN is a naira monopolist. Monopoly theory in economics explains how to price a monopoly product to run a profitable business. Those principles apply to the handling of the naira as a commodity and CBN monopoly product.
CBN’s WFAD distributorships’ devalued exchange rates along with the official Appropriation Act exchange rate (AAR) grossly undervalue the naira currently. However, as a first step towards determining the equilibrium market-reflective naira exchange rate, the AAR is meant to serve as the working rate or anchor in the single forex market using the managed float system. As shown in the earlier editorials touching on the SFM, the market-reflective rate of the naira would appreciate within a stable exchange rate band denoted by AAR+/-3 per cent. In the SFM, the banks cease to be exchange rate fixing distributors but become commission-earning forex brokers. The prospect of gradual appreciation and periodic change in the AAR in response to market forces will compel forex hoarders to flood the SFM with hoarded dollars inclusive of funds in domiciliary forex accounts for conversion to naira funds lest subsequent appreciation leads to losses of realisable naira funds. That scenario would attract fresh foreign direct investments thereby expanding the existing wide pool of forex supply.
Government has the prerogative under the aegis of the SFM to keep forex demand below forex supply to accumulate and/or conserve foreign reserves to protect domestic agricultural and industrial production and employment by imposing discriminatory customs duties at general agreed international levels. Government may also levy additional discriminatory taxes deemed necessary on various categories of imported goods and services to check dumping of foreign goods and reduce or discourage abnormal tastes for imported goods and services. It amounts to economic sabotage to condone attempts by selfish businesses working to undo this beneficial arrangement through demands for customs duty waivers. Thus for CBN to ban importation of legitimate items or falsely plead scarcity and shortage of forex is to create bottlenecks to foster corruption and economic underperformance. But note pertinently that, in contrast to the SFM prospects, the extreme poverty-promoting draft MTFF canvassed arbitrary and artificial downward adjustment of the value of the naira by CBN for the sake of attracting colluding predatory portfolio investors to join to quickly drain away the country’s hard-earned forex.
As the elected representatives of the people, the NASS, going forward, should ensure that the leadership of FMFBNP and CBN faithfully abides by the statutory provisions of the fiscal and monetary laws for the benefit of the generality of Nigerians. In the event they recalcitrantly continue to act in the injurious manner embodied in the draft 2022-24 MTFF, they should be promptly shown the door.