Implementing the budget as legislated
The Central Bank of Nigeria has stepped up insensitive campaign to sell unwavering implementation of the flawed monetary and usurped fiscal measures that have underdeveloped the national economy through systematic undermining of the productive sectors to the advantage of interloping corrupt domestic and foreign elements.
Exploiting the pervasive gullibility, the CBN through its Director of Corporate Communication within a fortnight last September feted and dished out misinformation to financial journalists at Awka, Anambra State and also to media executives in Abuja about its activities. But the CBN should have first pledged to be professionally and institutionally upright in light of the forced admission while proposing the stillborn strategic naira agenda in August 2007 that the apex bank’s management and defence of the naira (which have not changed) did not conform to best practice in successful economies. Nonetheless, the CBN last month proceeded to lay claims to (a) having resisted strong pressure to float the naira, (b) having eliminated the black market, (c) being open and transparent, (d) not over-funding the Federal Government, and (e) unyielding enforcement of so-called banned list of imports, which applied to only a part of the segmented forex market.
In order to shine light on CBN’s incorrect procedures, it is necessary to examine in a little detail requisite steps toward beneficial implementation of the annual budget. The claim to having refused to float the naira blatantly highlights the apex bank’s contempt for ground rules and laws of the land. The CBN has no free rein to float the naira because the naira exchange rate should be determined subject to the provisions of the CBN Act 2007 and the annual Appropriation Act (AA). The fixing by the National Assembly of the AA exchange rate (AAR) restricts the CBN to operate the managed (dirty) exchange rate fixing method. Though the dirty exchange rate is a given, its floating range is tied to the CBN’s object, “to ensure monetary and price stability.” Conventionally, prices are deemed stable when inflation ranges from 0-3 per cent. A budget implementation ground rule is to utilise and exhaust realised revenue for budgeted programmes/projects and recurrent expenditure before borrowing to cover any revenue shortfall. (Note that CBN breached this rule: despite CBN denial of over-funding, the Federal Government operated a parallel overdrawn CBN account while more than adequate funds sat in the TSA. Interpretation? The apex bank withheld the TSA and substituted debt (borrowed funds) for government spending.)
The rationale for totally using up realised revenue receipts before dipping hand into borrowings is because when government executes the budget with realised revenue there is zero inflation expectation. Stable prices (low inflation) are economic desiderata, which the CBN has routinely flouted. Instructively, the upper limit of 3 per cent of GDP put on fiscal deficit by the AA is aimed at keeping the economy within the safe 0-3 per cent inflation band. Similarly, the exchange rate as a price is deemed stable when it fluctuates within a band of 3 per cent. So for the CBN to celebrate monetary stability, its latitude to float the naira is confined within the band of AAR +/-3 per cent. Suppose forex sales/purchase transactions congregate in the positive half of the band. Under the 2017 AA, therefore, the naira should float between N305/$1 and N314.15/$1. The ruling daily exchange rate would be a weighted average of a given day’s total eligible forex transactions. Note interestingly that Federation Account beneficiaries could in particular sales transactions realise N314.15/$1 less commission on their dollar allocations as against the current flat rate of N305/$1. However, given the balance of available forex in the economy in relation to need, forex prices could tilt to the negative half of the monetary stability band and range from N295.85/$1 to N305/$1. This is so because, despite low crude oil prices, government revenue basket remains naira scarce. Also roughly 40 per cent of major petroleum operations are expected to be funded with dollar inflows. Moreover, there is the one-way dollar traffic topping $22 billion annually based on remittances by Nigerians in the Diaspora. The Ministry of Budget and National Planning should ensure the exchange rate reflects the true naira scarcity value as will be shown shortly.
The buying and selling exchange rates would emerge in a deposit money banks-operated single (economy-wide) forex market (SFM). The DMBs act as (1 per cent gross) commission-earning forex brokers/mediators rather than profiteering forex dealers bent on pushing up the cost of domestic production/services to uncompetitive levels. DMBs exist to oil economic expansion but the delinquent CBN has made banks disablers of national economic advancement.
The SFM would receive forex supply from public and private sector forex holders. Federation Account beneficiaries would have their dollar allocations retained in CBN vaults. Hence FA beneficiaries would sell via the SFM CBN-certified forex holdings in full or in part as and when desired. Portions of government external loans required for local disbursement should be converted via the SFM. As regards the private sector, its forex supply embraces private sector export earnings of all kinds including dollar funds of oil companies and foreign direct investors, forex in domiciliary dollar accounts, remittances from Nigerians in the Diaspora, forex collected from tourists by bureaux de change, etc. All forex, upon receipt, should be converted to naira sums via the SFM within a time limit not exceeding 30 days.
With respect to forex demand, forex utilisation is expected to be planned and aligned with the country’s budget and development needs that should include accumulation of Federal Government-owned external reserves by purposely keeping forex demand below supply. There is a national plan! Because CBN’s so-called import list has fiscal and national industrial policy considerations, the apex bank should end the trespass. In the country’s mixed economic system, the Ministry of Budget and National Planning should draw up, monitor compliance with and semi-annually update an eligible import list with graduated priority classifications that attract a forex access Tax (FAT) per dollar purchased. The FAT should increase with the imported item’s decreasing priority and be payable in naira. To fully protect domestic production, imports not procured with locally sourced forex should equally attract FAT. DMBs should collect and timely remit FAT takings to government treasury. It amounts to looting and economic sabotage for the CBN not to account for the difference earlier noted between the forex selling/purchasing price ranging from ₦305/$1 to ₦314.15/$1 and the much higher segment exchange rates. The differences represent massive government revenue leakages to interlopers. Where lie CBN’s claims to transparency and accountability? The FAT is additional to the traditional revenue collections of import and excise duties.
Note that the financing and execution of the budget up to this stage rely on realised revenue from various sources. There does not occur excess liquidity to spur piling up fake national domestic debt made up of mopped and sterilised excess liquidity funds. And the inflation expectation up to this stage remains the lower margins of the safe and stable 0-3 per cent inflation range. Such conditions would constrain the CBN to fix a corridor-less monetary policy rate (MPR+/-0 per cent) that matches the inflation rate of 3 per cent or lower. Such MPR would give rise to the hitherto elusive internationally competitive 5-7 per cent lending rates and extensive cheap bank credit to engender real sector boom.
Now, an efficient budget implementation machinery could fully utilise realised revenue and still encounter revenue shortfall and outstanding budgeted expenditures/programmes/projects. The AA anticipates and makes provision for such an outcome. Assume the 2016 GDP of ₦101 trillion applies. The AA allows government to access, when necessary, a stand-by facility (as it were) of up to ₦3 trillion via treasury bills to cover just the shortfall in revenue. At what cost? Section 29 of the CBN Act prescribes (MPR + 1) per cent which, from the foregoing, comes to 4 per cent or lower. Where the TBs are unattractive to ordinary subscribers, the CBN can take up the entire lot. Only such TB offerings represent genuine national domestic debt.
Doubtless, from the analysis, blocking of government revenue leakages would open avenues for accumulation of ample Federal Government-owned investible foreign reserves. The discussion also reveals much cheaper domestic funding options. Thus Buhari’s recent request seeking the Senate’s approval of $5.5 billion in external loans at 7 per cent interest towards refinancing part of the sterilised (fake) national domestic debt which was raised with treasury bills profligately at 13-17 per cent interest charge, turns out to be not cheap as the public is being goaded to believe. It is a deceptive faucet for controlled syphoning of government forex earnings. The request is unnecessary and should be rejected. The Buhari administration should rethink and begin to manage the economy according to existing laws of the land and tested rules for the benefit of the generality of Nigerians.
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