MDAs and mismanagement of the economy
Against the background of what the fiscal and monetary authorities already know, it is wicked for them to subject the Nigerian people to one additional day of deliberate mismanagement of the economy with impunity. Nigeria’s economic misstep was taken in the 1970s by then military political leadership, which compromised the primacy of the naira in the country’s economic space. The perpetuation of the ruinous military action five decades on in a guise of homegrown heterodox fiscal and monetary policies (HHFMP) is not only unconscionable but also reflects poorly on the single largest concentration of same 204 million black people on earth.
Chapter II of the 1999 Constitution and the oaths of office of both public officers and civil servants require the top echelons in the federal ministries, departments and agencies (MDAs) to think through policy directives so as to correct any mistakes therein, guide the political leadership suitably, recommend and implement policy options that benefit the generally of the people.
In that light, the MDAs are aware of the causes of the numerous problems facing the economy. For example, one, the OP-ED pages of The Guardian of 23-24/6/2014 show that the World Bank (WB) as far back as August 16, 2006 formally tagged improper the aforementioned misstep by the ex-military regime, that involves the withholding of Federation Account (FA) dollar allocations by the apex bank, which proceeds to substitute in their place fiat printed purported naira equivalent for budgetary spending by the tiers of government. Apparently hiding behind the WB’s deception that it was up to the Federal Government as the sovereign authority to decide what to do, the fiscal and monetary authorities continue up to the present day to falsely appropriate support of the Bretton Woods institutions for the adjudged improper CBN action. However, it is open knowledge that in its Article IV Consultations with Nigeria reports for 2017, 2018 and 2019, the IMF (the alter ego of the World Bank) recommended fiscal and monetary policy changes and the adoption of a unified naira exchange rate.
Two, the Debt Management Office website reveals that seven MDAs with the assistance of WB, IMF and WAIFEM fashioned out a debt management strategy for the country beginning in 2012. Nigeria’s Debt Management Strategy, 2016-19, was purportedly necessitated by “the fact that the country is currently under severe revenue pressure arising from a volatile macroeconomic environment (VME) and uncertain global macroeconomic outlook.” The 2016-19 debt strategy preferred “an increase in external financing with a view to rebalancing the public debt portfolio in favour of long-term external financing (with target optimal domestic to external debt ratio of 60:40) in order to reduce the debt service cost and lengthen the maturity profile.” Accordingly, the domestic to external debt ratio which, as at end-2015, stood at 84:16, by end-September 2019, settled at 68:32 with the federal debt service to revenue ratio in 2019 exceeding 50 percent.
Three, note that the earlier indicated VME arises from the aforementioned CBN fiat printed purported naira equivalent being disbursed to FA beneficiaries in place of the improperly withheld dollar allocations. In Section 7 of the 2020-22 MTEF/FSP, the Budget Office of the Federation (BOF) confessedly dubs the fiat printing of purported naira equivalent deficit monetisation. BOF also indicates that the deficit monetisation has had accompanying macroeconomic dislocations. Clearly, the macroeconomic dislocations are the same as the VME, which seven MDAs including BOF gave as justification to arm DMO with the debt strategy to sell risk-free Federal Government debts to domestic and foreign lenders to the detriment of the government kitty.
The economic conclusions and manifestations arising therefrom include, first, the VME, the deficit monetization-induced macroeconomic dislocations and FG revenue-draining borrowings by DMO are of the making of BOF/CBN among other MDAs. Thus the collusive mismanagement of the economy by MDAs is established. Second, it is axiomatic that government expenditure based on realised revenue produces little inflation. Also the rate of inflation in the main equates with incurred government fiscal deficit level. Clearly, CBN’s heterodox inflation target of 6-9 per cent is explainable by the level of deficit monetisation of withheld FA dollar allocations plus actual fiscal deficit incurred by the tiers of government plus CBN heterodox direct funding of the real sector plus the various unearned interest payments by CBN to the banking sector, all as a ratio of GDP.
In the circumstances, the Monetary Policy Committee was only feigning ignorance in its Communiqué No 128 of January 23-24, 2020 meeting by not upright pinning the rising double-digit inflation level on the above contributory factors. The upshot is through the HHFMP, MDAs have foisted on the country double-digit inflation regime, which saps the real sector no thanks to the concomitant restrictive monetary stance. The end product is constrained low GDP growth, which NBS GDP estimates attest.
Third, deficit monetisation of FA dollar allocations effectively transformed public sector proceeds of the expert of Nigeria’s black gold to economic curse. Call it MDAs’ brand of economics. The economic curse outcome negates and reverses the established (conventional) economic teaching that robust export earnings strengthen the national currency and lead to economic prosperity. But not so in Nigeria. Recall that beginning in 1974, FA dollar allocations have constituted over 50 per cent of the annual budgets of the tiers of government on paper. Yet the naira has plummeted from N0.5464/US$1 in 1980 to the 2020 Appropriation Act exchange rate of N305/$1 or N360/$1 (in the Investors’ and Exporters’ window) despite the healthy FA dollar proceeds in addition to large volumes of remittances, private sector export earnings, foreign direct investments and even predatory foreign portfolio inflows. The plunging value of the naira moved in tandem with declining standards of educational institutions, all-round dilapidating infrastructure and rising incidence of poverty. In May 2018, the country became the poverty capital of the world. That economic trajectory evidences the inappropriateness of the HHFMP being superintended by the MDAs.
Fourth, mention should also be made of the fact that the MDA-nurtured double-digit inflation regime has cast a pall over the country’s commitment to achieving the central ECOWAS objective of “a strong monetary union which can serve the economic and social development of the region.” ECOWAS was established on May 28, 1975. In 2000, it planned the Eco regional currency, which was initially scheduled for 2003. The takeoff suffered five postponements by 2015. But ECOWAS governments affirmed in February 2018 to merge Eco with CFA in 2020. For the regional currency to start operation, every member country was required to achieve four primary and six secondary criteria such as single-digit annual inflation rate and fiscal deficit of not more than four per cent of GDP. Only Ghana and Togo met all criteria in a single year in two widely separate years. The absence of macroeconomic convergence among the 15 ECOWAS countries makes the prospect of a single Eco currency in the region bleak.
Against the above backdrop, the deliberate mismanagement of the Nigerian economy by MDAs should stop. Given the 2020 projected population of 208 million, Nigeria is the world’s seventh most populous country. She accounts for about 55 per cent of the population of ECOWAS. Nigeria’s population is 1.6 times that of Japan (the world’s third largest economy) and equals the combined population of Germany, France and Italy (the three largest economies of the European Union). Contrary to CBN’s economy-hobbling heterodox inflation target of 6-9 per cent, the European Central Bank has “defined price stability as inflation rate below, but close to, two per cent over the medium term.” That definition has been accepted by the world’s major economies.
It is binding on the fiscal and monetary authorities to abide by the CBN Act, the Fiscal Responsibility Act and the Appropriation Act (AA). This newspaper has shown that in terms of the above Acts, the AA-fiscal deficit ceiling of 3 per cent of GDP makes it imperative for the CBN to observe inflation range of 0-3 over the medium term as price stability. It has also been explained that the operation of a single forex market (SFM) based on the managed float system with the Appropriation Act exchange rate as the anchor would facilitate federal balanced budgets and even budget surpluses.
As a result, the inflation rate would be close to zero thereby giving rise to internationally competitive single-digit real interest rates. That outcome would puncture the MDA strategy for unnecessary DMO borrowings with dissipation of FG revenue aforethought. In addition, whether the SFM untilises the 2020 AA exchange rate or a revised rate linked to the Investors’ and Exporters’ window, the naira would be significantly undervalued, a situation that may be left to stay for as long as necessary. Such conditions would conduce to a throbbing economy and double-digit GDP growth rate.
Surely, a rapidly growing economy would benefit all the Nigerian people in tune with the constitutionally enshrined Fundamental Objectives and Directive Principles of State Policy and so should be desirable to the federal ministries, departments and agencies.
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