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CBN and the penalties of forex revenue


Notwithstanding the unlimited “time allowed for past policies (of the CBN’s Monetary Policy Committee) to work through the economy” and despite the demand (borne out of unbroken disappointment) made in the course of its meeting last May that the MPC should embrace proper management of public sector forex in order to launch the economy on the path to double digit growth rate by the next fiscal year, the MPC at its 257th meeting on July 24-25, 2017 yet again merely cited the ever-present liquidity surfeit in the system together with the associated headwinds as reason to maintain the longstanding restrictive monetary policy stance by fixing CBN’s standing lending facility at 16 per cent. This rate anchors high lending rates which discourage the real sector from borrowing to invest.

Considering the establishment of the CBN and the commercial production of crude oil for export go far back to 1958, failure to make public sector oil revenue to maximally benefit the Nigerian economy reflects very dimly on the conscientiousness of successive fiscal and monetary policy/decision makers. The cause of the problem arose in 1971 upon the demise of the Bretton Wood system of fixed exchange rates when then military regime got a pliant CBN to withhold public sector oil proceeds and to disburse in their stead mint-fresh naira sums (technically termed hot money) to the tiers of government for budgetary spending. The CBN along with the MPC (the latter aids the former to “formulate monetary and credit policy”) has stuck to the faulty procedure ever since. Result? Withheld Federation Account dollar allocations have transformed into a tool for the CBN to inflict multifaceted penalties on the economy. In the process a vicious circle of overarching penalty has formed: the initiators of the baneful procedure, their successors and accomplices within and outside the country continuously syphon unearned wealth from the system thus leaving the raped and plundered economy to be controlled exploitatively from behind the scenes by foreign interests and multilateral agencies with sitting/incumbent successors of the aforementioned initiators acting as fronts.

Luckily, through recent actions, the CBN whose modus operandi all the while had been to play the stonewalling blind deaf mute amid barely hidden facts, provided hard and fast proof of the very poor quality of the fiscal and monetary measures. One, the usual mid-month disbursement of revenue by FAAC as regards July was delayed till the decisions of the MPC meeting were ready on 25/7/17. A little analysis of the June revenue accruals shared on that date shows that oil proceeds amounted to $753 million. But the forex allocation was as usual withheld and substituted with N229.8 billion (N305/$1) procured from the CBN. Presuming that the tiers of government would have spent the total allocations in one fell swoop, the CBN a week after swelled the national domestic debt (NDD) through issuance of Treasury Bills worth N229.14 billion (that is 99.7 percent of the sum wrongfully substituted for withheld FA dollar allocations) at double digit interest cost in order to reduce liquidity in the system and curb inflationary pressure.

Implication? (a) The sum substituted above was shared among the tiers of government but added in full to Federal Government domestic debt. This happened when the FG had no cause to borrow soon after collecting FAAC disbursements. (b) The gratuitous loan which raised the NDD, its high cost, the ensuing denial of bank credit to investors, etc, are penalties inflicted by CBN because government earned forex revenue. (c) CBN openly confirmed that the sum substituted for withheld FA forex causes inflation, which analytically is the by-product of deficit financing. (d) The apex bank agreed that, with the exception of the substituted sum, the shared realised non-oil revenue is non-inflationary just as economics teaches. Note that when dollar accruals are correctly disbursed in secure form, FA beneficiaries will convert their respective allocations in the forex market at the Appropriation Act exchange rate of N305/$1 as and when they desire. Eligible forex buyers will use naira funds already in the system (which is also the source of the non-oil revenue). That way, the dollar allocations will similarly not be inflationary, the NDD will not grow and Federal Government will not pay double digit interest charge and amortise a fake national debt. The CBN penalty through the fake NDD stood at N12 trillion on 31/3/17.

The 2017 Appropriation Act set aside N1.5 trillion to dash out or to service the debt, which represents yet another forced penalty at a time the federal executive are is pretentiously seeking external loans for delivery of essential projects. (e) Because the government earned forex revenue, the CBN penalizes the country with excessive fiscal deficits that are over and above the level approved in the Appropriation Act. The excessive fiscal deficits hatch other penalties, namely, inflation, depreciation of the naira, attendant public loss of confidence in the national currency and rising preference for dollarisation and use of permanent dollar domiciliary accounts. As a result the CBN is set to inflict double jeopardy on the Nigerian people through dollar denominated Treasury Bills by borrowing back dollar amounts wangled from withheld dollar allocations for lodgement in domiciliary dollar accounts or stashing away in foreign bank accounts. It is fraudulent for such subscriptions of Treasury Bills to be termed product of external loans. The scam should stop. (f) Also out of fear of stoking inflation, the bulk of FG’s matured commitments in the form of salary arrears, contractors’ debts, pensioners’ arrears, overheads of some government departments that are duly budgeted for and are fully covered by realised revenue available in FG kitty, is not settled as and when due in order to reduce money in the system. This CBN penalty arising from the apex bank’s mismanagement of public forex revenue inflicts severe pain on those being owed and constricts economic activity. All the CBN penalties are unjustifiable and should terminate.

Two, on the eve of the MPC meeting, Emefiele was guest at the Second Homecoming Series organised by the Department of Economics of the University of Nigeria, Nsukka. Is the series an entirely celebratory fund-raiser? Does the Department also run a discreet programme of consultations with a view to helping alumni holding high public offices to succeed in their assigned national duties? The second question arises because a string of UNN alumni has been privileged to superintend the monetary/financial sector in the democratic dispensation only to leave the generality of Nigerians looking nostalgically to the period before their coming. The alumni failed.

In his homecoming lecture, Emefiele exhibits a lack of understanding of a CBN governor’s job description, which is statutorily enshrined in the Central Bank of Nigeria Act 2007. The Act is binding on the three arms of government. Diligent implementation of the objects and sections 15, 16 and 38 of the Act removes as a matter of course some aberrations plaguing the Nigerian economy including, firstly, the relentless withholding of FA dollar allocations. Secondly, as previously noted, the withheld dollar allocations are replaced with purported naira equivalent made up of CBN fiat funds that by their origin and economic impact represent proportionate deficit financing. Note that the first and second aberrations are infractions (dictated by the executive arm) of both the CBN Act and the Appropriation Act. A dutiful apex bank governor is armed by section 38 of the Act regarding how to tackle the issues. Thirdly, there is rampant dollarisation as well as operation of multiple currency system in the form of dollar domiciliary accounts without set time limit contrary to section 15. Fourthly, there is proliferation of fragmented forex windows leading to several naira exchange rates contrary to section 16 of the Act.

After invoking provisions of the Act to throw out the above distortive intrusions, implementation of the annual budgets (whether balanced budgets, surplus budgets or budgets within the allowed fiscal deficit limit of 3 perfect of GDP) will produce conducive economic production environment-defining tripodal factors of low inflation (0-3 per cent), internationally competitive lending rates (5-7 per cent) across the board and naira exchange rate centred on the Appropriation Act exchange rate that is realistic and stable. These conditions attest the realisation of the apex bank object “to ensure monetary and price stability”, which facilitates the additional object “to promote a sound financial system in Nigeria.” These objects have remained unattainable since the 1970s as if successive fiscal/monetary policy makers and implementers belong to a subhuman species that does not know what is right and is incapable of learning or borrowing what is right from successful economies.

As the tripodal factors unfurl, deposit money banks will seize the opportunity to seek investors and actively channel cheap bank credit to the various sectors. Thus will bank credit help fix decayed infrastructure, resuscitate educational and health facilities, grow agriculture and its value chain, oil extensive manufacturing and so on. It is pitiable that the poor condition of all aspects of the economy only drew crocodile tears from Emefiele, who justified the high lending rates responsible for their jejune state while promoting medical tourism and subsidising foreign educational institutions with scarce forex required to put domestic tertiary institutions in excellent shape. Therefore, Emefiele should rethink, immediately embrace and diligently discharge the responsibilities of CBN governor. Alternatively he should quit and make way for another governor who has the balls and knowledge and patriotism to carry out the very important duties of the Central Bank of Nigeria.

At this juncture, for the sake of ensuring the economic prosperity of the greatest number of Nigerians today and of Nigeria’s unborn generations, it is fit and proper to request the eminently qualified UNN Department of Economics to react to and critique the above economic tutorial (as it were) on the CBN’s bounden duty to fix the economy and how to do so. The Guardian will publish the Department’s position on the matter.

In this article:
CBNFAACGodwin EmefieleMPC
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