Economic recovery: Implement 2021 Budget correctly – Part 4
In plain truth, that decades-long disobedience of the Federal Government to the provisions of the CBN Act and its disdain for the FRA and AA mandated ceiling of fiscal deficit constitute a blatant trampling on the rule of law.
Instructively, there is not one successful or leading world economy that is being subjected to multiple currency practices (which the forced cohabitation of the naira and the US dollar connotes) at the expense of the national currency. In the circumstances, it amounts to shedding crocodile tears for Buhari to keep lamenting the resultant inevitable worsening state of economic unrepair. In any case, the military fiscal/monetary legacies should have ceased on 29 May 1999. The improper practices should therefore stop forthwith.
In 2019, as earlier indicated, the Oil Sector contributed just 8.78 per cent to GDP. Latest available data shows that Nigeria’s export to GDP ratio is 15.49 per cent while the import to GDP ratio is 17.51 per cent. The importance of the foreign sector should therefore not be exaggerated. Accordingly, the fate of the economy should cease to be tied to whimsical naira exchange rates based on partial oil sector inflows of forex while the federal budget suffers from grossly under-collected non-oil revenue volumes. Instead, the determination of the naira exchange rate should conform to global best practice and, in obedience to the three guiding fiscal and monetary laws, the exchange rate should correctly emerge through a single forex market (SFM) that pits total forex inflows into the system against forex demand level reflecting the defined needs of the economy.
And so, if the proposed 2021 Budget exchange rate of N379/$1 holds, the SFM-determined exchange rate should float within the band of AAR+/-3 per cent with the exchange rate per dollar figures ranging from N367.63 to N390.37. As regards forex supply, as of end-September 2020, Nigeria’s external reserves (which are made up of FA oil proceeds) stood at $36 billion. (Going forward, FA beneficiaries should collect dollar allocations in a secure form for direct transaction in the SFM), There was $16 billion in dollar domiciliary accounts. An unspecified amount of re-exported remittances stood to the credit of Nigerian banks. Also some Nigerians held an unknown amount of dollars informally under the pillow, so to speak, while a considerable amount of dollars was in transit or in possession of air/road/sea travellers. Clearly Nigeria has not been experiencing a lack of forex to warrant the hefty devaluation that has occurred in the course of this year. The country’s total forex supply (from government and business and individual sources) should be transacted through the SFM within duly specified time limit.
With respect to forex demand in the SFM, countries are required to maintain at least three months’ import cover worth of forex as forex reserves towards meeting movements in the balance of payments. That in itself is justification for a country to moderate demand for forex based on the defined needs of its economy. That objective is achieved through the imposition of variable import tariffs on goods and services. Import tariffs are basically intended to protect domestic agricultural and industrial production against unfair foreign competition and not primarily to generate revenue. But the government possesses the sovereign right to impose a tax for the purpose of raising revenue. So with the FG revenue strapped and overburdened by debts, FG does not owe any vested/corrupt/selfish interests any apology if it becomes imperative to raise needed revenue by imposing variable forex access tax on various imports inclusive of forex for repatriation of dividends and fees by companies. The so-called gradual removal of Import Adjustment Tax (IAT) under the African Continental Free Trade Agreement (which is contained in the 2021-23 MTE/FSP) panders to the interest of countries that found it beneficial to partition Africa in 1884.
The Nigerian national interest should be paramount at all times. Therefore, even imports not paid for through the SFM should attract applicable customs duty and forex access tax (FAT) as if funds for the imports emanated from Nigeria. That is the road to balancing the budget and even producing a budget surplus. In this regard, let it be emphasized that the mandate of FMFBNP is neither to recklessly put the country’s sovereignty in pledge for external loans together with mounting domestic debts as a means of partly funding federal budgets nor to constantly dictate devaluation of the naira for the purpose of fancifully matching any budget numbers. The FMFBNP should stick to its true mandate which includes making Nigeria pull herself up by her bootstraps through drawing up import tariffs and FAT rates (which should be updated regularly and put into effect via supplementary budgets) for the purpose of protecting domestic production and generating revenue and accumulating genuine external reserves.
Given the above forex supply and demand profiles and coupled with rational cost-cutting economic behaviour, the SFM-determined naira exchange rate will tend towards AAR-3% or N367.63/$1. The ruling exchange rate on a given day will be the weighted average exchange rate for that day. At the AAR of N379/$1, the naira is grossly undervalued. Thus in response to the tendency of the SFM-determined exchange rate to bunch up at AAR-3%, the effective AAR should crawl and be gradually revalued semi-annually via a supplementary budget. Such periodic gradual revaluation of the naira would be a signal for forex being kept under the pillow and purloined forex being sequestered in private foreign bank accounts to repair to the SFM to be transacted. At the end of every SFM trading session, surplus forex not bought by forex end-users would be purchased by the CBN at the market-determined exchange rate to accrete external reserves. Note that the external reserves will be pooled from various public and private economy-wide activities. The resulting robust level of external reserves would in no time necessitate doing away with all forms of external loans altogether while any needed expertise and technological transfer required from outside the country could be procured at a competitive international prices.
As indicated in previous related editorials and also above, the SFM will within one year bring down inflation within the mandated 0-3 per cent level and facilitate access to bank credit at 4-6 per cent lending rates with the long-yearned-for desirable economic accompaniments. Does NES controvert these possibilities?
So Nigeria’s problem is wilful mismanagement of the economy through self-serving and flawed directives by successive heads of government, who consistently have forborne enforcement of the beneficial and existing fiscal and monetary laws. Enough is enough.
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