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2022-24 MTFF/FSP and Nigeria’s dithering economy

By Editorial Board
20 September 2021   |   4:16 am
In the draft 2022-24 Medium Term Fiscal (sic) Framework/ Fiscal Strategy Paper for Public consultation, the Federal Ministry of Finance, Budget And National Planning and the Central Bank of Nigeria...

Minister of Finance, Zainab Ahmed. Photo/Twitter/FinMinNigeria

In the draft 2022-24 Medium Term Fiscal (sic) Framework/ Fiscal Strategy Paper for Public consultation, the Federal Ministry of Finance, Budget And National Planning and the Central Bank of Nigeria, both acting as usual  like enemy-country establishments, proclaimed their intention to  continue to stunt the economy  and to further deepen extreme poverty in the land by keeping in place the four decades-long heterodox fiscal  and monetary procedures with the attendant artificial naira exchange rates.

In 2020, Nigeria’s share of world trade was a paltry 0.33 per cent according to the World Trade Organisation. That percentage includes oil and gas exports, various categories of imported refined petroleum products, merchandise exports and imports. Contrary to widespread opinion that Nigeria is  reliant on petroleum export proceeds, NBS data indicate that the economy is diversified with the oil sector contributing 8.16 per cent to GDP ( at 2010 constant basic prices ) in 2020 and non-oil sector  made up of diversified activity subsectors contributing 91.84 per cent. Nigeria depends on the oil and non-oil sectors.  The draft 2022-24 MTFF/FSP predictably attributes the poor economic situation and the 2020 recession to low crude oil prices and bandwagon economic lockdown occasioned by the COVID-19 pandemic. But ordinarily, the low energy prices associated with low crude oil prices ( sans lockdown ) as intermediate  input costs should stimulate domestic agricultural and industrial production, which should lead to stable or even reduced inflation to the benefit of the predominantly non-oil economy. Thus NBS data which run contrary to expectation evidence the inappropriateness of the relevant policy measures being implemented.

For example, one, the usual self-created double-digit inflation kept rising during the second and third quarters of  economic contraction (depicting the 2020 recession) from 12.34 per cent in April to 13.71 per cent in September. Even after exit from recession, the inflation rate leapt from 14.23 per cent in October to 15.75 per cent in December 2020 and then shot up further to 18.17 per cent in March 2021 where it has plateaued for six months by recording 17.01 per cent in August. The spike in inflation was caused partly by the strange devaluation of the naira to facilitate the expansion of nominal naira funds by means of deficit monetisation of reduced Federation Account dollar receipts from crude oil exports toward matching the projected budget revenue and partly by additional spate of apex bank fiat printed intervention funds. The implication is dire. Recall that inflation alone pushed seven million Nigerians into extreme poverty in 2020 according to the World Bank 2021 Nigeria Development Update. And so foretokening further increasing extreme poverty under the prevailing fiscal and monetary procedures are the very high inflation level in 2021 so far and the likelihood that 2022 inflation would exceed the draft MTFF projected rate of 13.0 per cent. Yet the fiscal and monetary MDAs are mandatorily enjoined to maintain inflation within the safety range of 0-3 per cent to create conducive conditions for building a diversified and industrialised   economy. Notwithstanding the fact that the energy needs of an industrialised Nigerian economy could eliminate the current level of crude oil and gas exports, such eventuality would guarantee enhanced employment and prosperity and improved revenue generation for government. That outcome is eminently preferable to the current extreme poverty-harvesting mishandling of the fluctuating dollar proceeds from primary petroleum exports.

Two, the draft document  indicates at page 18 that actual imports in 2020 soared by 184 per cent over and above the projected level (but without proportionate increase in government revenue from imports) while GDP declined by 1.92 per cent and industry sector slumped by 5.85 per cent. Constrained by artificial scarcity of foreign exchange, some local manufacturing firms were forced to source forex from BDCs and the black market for raw material imports. The bulk of the imported items were final goods whose substitutes could be produced locally. In 2020, installed manufacturing capacity utilisation hovered around 50 per cent because of purported shortage of forex to import raw materials for local production and/or influx of cheap imported final goods. Yet in that year at least $16 billion was locked away in domiciliary forex accounts in breach of the mandatory naira legal tender provision of section 2(b) of the CBN Act.

It should be added that (i) the cumulative total of forex in CBN’s external reserves (which is a misnomer ) plus illegal domiciliary forex account funds plus low level genuine FG foreign reserves amounted to well over nine months’ import cover whereas only three months’ import cover is required as hedge against balance of payments movements. (ii) Raw materials and final goods imported with forex procured outside a properly organised forex market routinely escape government tax dragnet, under-sell domestic agricultural and industrial production and deny Nigerians employment while corruptly enriching financial interlopers, currency speculators and outright destroyers of the economy. (iii) In effect, the economy faces neither scarcity nor shortage of foreign exchange: there exists unpatriotic and criminal mismanagement of the country’s ample forex supply for the benefit of parasites.  

Three, notwithstanding the indicated ample supply of forex in the system at any given time, the draft MTFF completes the vicious circle that nurtures the systemic economic under-performance by disclosing in its introduction that the naira exchange rate under the heterodox fiscal and monetary procedures sways to “sustained perceptions about over-valuation of the naira…(with) CBN adjusting the official exchange rate to align with the NAFEX rate currently N410.15/$1” as it pleases. Thus consistent with the concealed game plan being executed, the draft MTFF affirms the absence of a market-reflective exchange rate fixing system that commands public confidence. However, contrary to the misleading position in the draft, the necessary and sufficient condition for sound economic management and attainment of desirable objectives is a market-reflective and stable exchange rate of the national currency. Analogously, the national currency is the lifeblood of the economy just as a person with low blood count becomes enfeebled, an unstable currency symbolises a weak and sliding economy heading to collapse.
• To be continued tomorrow.