Buhari and debt-free sustainable growth – Part 1

Annotated review of CBN Economic Report First Quarter 2020 (ERQ1, 2020) makes it evident that to fix the country’s multifaceted infrastructural gaps and socio-economic difficulties is realisable. Post-COVID-19 lockdown, Nigeria requires neither domestic nor external loans to execute federal budgets but only abidance by the Oath of Office of the President. That way, the economy will achieve self-financed double-digit GDP growth rate and eliminate the high incidence of extreme poverty.

Section 5 of the quarterly report deals with the external sector and lends itself to a detailed explanation of the country’s forex earnings, which could fuel overall national advancement. One, during the quarter, aggregate sectoral forex utilisation for importation amounted to US$15.20 billion. Invisible imports accounted for $10. 88 billion or 71.6 per cent of the total while food imports amounted to $55 million or 3.6 per cent. There are no corresponding receipts from invisible exports, which are heavily represented by remittances from Nigerians in the Diaspora. CBN’s resort to re-exportation of the remittances is actionable breach of the country’s forex law because the transfer of the forex earnings is not backed up by documented matching receipts of goods and services from abroad. Therefore, the remittances should henceforth be correctly channelled through the recipients’ bank accounts and transacted in the single forex market.

Two, the report shows that aggregate forex inflow into the CBN amounted to $15.01 billion while aggregate outflow from CBN was $17.62 billion. Also aggregate forex inflow into the economy was $42.71 billion as against aggregate outflow from the economy of $18.97 billion resulting in a net forex inflow of $23.74 billion. Autonomous forex inflow of $27. 71 billion accounted for 64.9 per cent of the total inflow. Since CBN accounted for $17. 62 billion out of the $18.97 billion aggregate outflow, the balance of only $1.35 billion outflow should be deducted from the autonomous forex inflow. That gives net autonomous forex inflow of $26.36 billion during the quarter.

Note, first, that the huge autonomous forex inflows (they are technically export receipts) debunk CBN claims that oil receipts account for 90 per cent of Nigeria’s export earnings. Second, despite the positive developments, gross official external reserves of $38.11billion as at end-year 2019 decreased to $33.69 billion as at end-March 2020. The negative movement in external reserves is explained by CBN fallaciously limiting Nigeria’s foreign reserves to Federation Account dollar accruals being withheld and kept by the apex bank. (Ignore the spurious and witless breakdown of the external reserves by ownership.)

Third, the question that arises is: where did the big sum of $26.36 billion net autonomous forex inflow go? Assumedly, the amount dispersed into (a) domiciliary dollar accounts kept in deposit money banks, (DMBs). (b) forex hoards by individuals being kept under the pillow so to speak, (c) the heavy loads of foreign currencies which are routinely physically ferried to other countries for stashing away in foreign bank accounts, (d) on-the-street parallel market currency trade, etc. In other words, government did not put the autonomous forex receipts to national economic advantage but allowed the amount to go into the hands of a few businesses and individuals who deployed the hard currency to undermine the economy at the expense of the majority of the people.

Fourth, the above prodigal outturn arose from failure to adhere to the letter and spirit of three fiscal and monetary laws, namely, the Fiscal Responsibility Act (FRA), the annual Appropriation Act and the CBN Act 2007. Even presidential directives have become the major victims of the non-observance of the existing laws. For example, recall in his first major economic decision in office, President Muhammadu Buhari in June 2015 directed the CBN governor not to release forex from the external reserves for importation of 42 (later 44) items inclusive of various food items. Five years on (during which period the administration implemented its Agricultural Production Policy (APP) 2016-2020) and on the occasion of the meeting of the National Food Security Commission on September 10, 2020, the President for the third time since 2015 again openly barred the apex bank from releasing forex from the external reserves for importation of food. A few days before then, the CBN had given two firms waivers to import over 200,000 tonnes of maize for livestock feed production. While it is not clear whether the President’s repeated directive would overturn the CBN waivers, there is no doubt that the administration’s partial forex exclusion policy can’t work. It is instructive that following appraisal of the APP in 2019, the Federal Ministry of Agriculture and Rural Development (FMARD) made several fiscal recommendations for the eventual success of the forex restriction directive including the need to “increase tariff on any commodity that Nigeria can produce (rice, starch, sugar, etc) to promote domestic production and local content”.

Three, have a glimpse of the missed non-prodigal and beneficial outcome embedded in the three and monetary laws. (i) Because Nigeria operates a mixed economy, not all forex earnings pass through the CBN. However, the country’s total forex earnings pass through the single national economy just as, to tautologise, FG fiscal and monetary policies are applicable throughout the economy. (ii) The naira is the exclusive legal tender enshrined at Section 2(b) of the CBN Act 2007. Accordingly, total forex earnings, upon receipt in the economy, should be converted to naira legal tender (within a specified time frame) for all transactions within Nigeria. Any forex not utilized for external commitments that fall due within the stated time should flow through the single forex market to the CBN as the country’s pooled external reserves.

In the process, there would always be oversupply of forex in the CBN to meet various external commitments as and when due. That method would eliminate current adverse features such as artificial forex scarcity, outstanding forex backlog, forex forwards, routine apex bank intervention in the forex market, monotonic depreciation/devaluation of the naira, etc, (iii) The CBN Act 2007 does not envisage the existence of separate public sector forex, separate autonomous forex, domiciliary forex accounts, under-the–pillow forex, carting of forex physically to other countries and riotous on- the- street forex trade. (iv) Indeed, the legal tender provision abrogates the operation of the multiple currency system and the operation of domiciliary forex accounts by individuals on a permanent basis.

Four, during Q1, 2020, CBN sold a total of $13.37 billion to middleman-forex dealers at the multiple exchange rates of N310.57/$1 in the interbank segment, N363.48/$1 in the bureau de change segment and N365.06/$1 in the Investors’ and Exporters’ (I&E) segment. That action breached the statutorily binding mandate to determine the exchange rate (NOT rates), which has been given to the CBN leadership under the aforementioned three laws as a necessary and sufficient condition for the economy to work efficiently. To wit, Section 16 of the CBN Act requiring a mechanism to determine the naira exchange rate (NOT rates) can only be fulfilled through operating a single forex market (SFM).