How CBN can reverse Nigeria’s underdevelopment – Part 2

These are features that are associated with excessive fiscal deficits which the conditions duly set in the Fiscal Responsibility Act and the annual Appropriation Act seeks to avoid. The volume of fiscal deficits being fed into the system may be measured by the fact that, beginning in 1974, crude oil proceeds have consistently accounted for over 50 per cent of the annual budgets of the tiers of government on paper including the 2021 budget. Hence, the oxymoron of Nigeria’s oil curse popularized by some analysts is in reality forced reliance by the tiers of government on improper CBN-foisted fiscal deficits that persistently exceed 50 per cent of their annual budgets.

Consequently, the country’s incurred total annual fiscal deficit persistently tops the safe ceiling of 3 per cent of GDP thereby unleashing unconducive production environment. That situation can only result in economic failure.

Note that Nigeria’s oil boom decade (1970-79) was permanently extinguished after the CBN-created fiscal deficits reached the tipping point. Little wonder since then every form of national economic planning- Fifth National Plan, NEEDS I&II, Vision 2020, three-year rolling plans (MTEF), Agriculture Transformation Agenda, National Industrial Revolution Plan, Agriculture Promotion Policy, Forex Restriction Policy- has ended as an exercise in futility.

Without doubt, if the Nigerian-style macroeconomic instability and ultimate economic failure were truly the outcomes of the monetization of export earnings, the world would not witness export-oriented developed economies.

Indeed, during the same five decades which witnessed Nigeria’s transformation from oil boom economy to the poverty capital of the world, countries which relied and still rely far more heavily on exports such as China, U.S., Germany and Japan (to name only the TOP 4 export earners in 2020) were not thrown into volatile macroeconomic environment. Instead, they became increasingly industrialised and prosperous.

Three, policy makers should stop unnecessary pretences and face the facts. NBS data show that contributions to the 2020 GDP by the 45 non-oil economic activity sectors combined and the Oil sector alone stood at 92.0 per cent and 8.0 per cent respectively. That again clearly belies official claims that the economy is petroleum oil-reliant. The tragedy, however, is that the faulty handling of oil proceeds by the apex bank has severely weakened the naira thereby stunting the 45 non-oil GDP economic activity sectors in varying degrees and so underdeveloping the economy over the years.

Pertinently, within a fortnight of assumption of office in March, the WTO Director-General visited the country: she raised several economic issues including concerns about forex restriction for importation of 43 items and the existing multiple exchange rates. The problem lies in the operation of Central Bank against the Naira. Ordinarily, the Appropriation Act exchange rate (AAR) should serve as the anchor in a single forex market (SFM) in line with Section 16 of the CBN Act. The operation and benefits of the SFM have been outlined in some earlier editorials.

However, the CBN leadership in military style of yore overrides the budget document and the existing fiscal and monetary laws with impunity and proceeds to arbitrarily and ultra vires set devalued naira exchange rates that vary by over 18 per cent relative to the AAR for some segments, namely, Interbank, Investors’ and Exporters, (I&E), Bureau de change, Forwards, Diaspora remittance, etc. Mockingly, Forbes awarded the incumbent CBN governor a prize for introducing the injurious I&E window in 2017.

The multi-segment exchange rates have several disadvantages. (i) The predictable depreciation/devaluation of the naira across the segments has made currency trading and speculation a far more rewarding engagement than productive activity; (ii) the operation of multiple currency system via domiciliary dollar accounts has led to permanent artificial scarcity of forex for productive use whereas under the SFM, forex supply would exceed demand and the naira, being currently grossly undervalued, would appreciate; (iii) the multi-segment exchange rate system exacerbates inflation  because importers use the most depreciated exchange rate available in the market for costing and pricing; and (iv) the multi-segment exchange rate system facilitates dumping of foreign products on the country to the detriment of government revenue and domestic production.

It is over two months since the WTO director-general raised the above concerns, but the operation of Central Bank against the Naira has not relented while reports indicate that wheat and sugar would be added to the list of items placed under forex restriction. Note that the forex restriction policy was adopted six years ago, but none of its stated objectives has been realised.

And so, the operation of heterodox fiscal and monetary measures should stop. Only global best practice and conventional procedures contained in the existing fiscal and monetary laws will develop the economy at a fast pace.

Concluded.