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Nigeria and IMF growth projections



As always, the International Monetary Fund (IMF) jumbled the state of Nigeria’s economy, its needs, problems and the key to solving the problems in its statement the other day on the Conclusion of the 2019 Article IV Consultation with Nigeria. The statement says in part: “A large infrastructure gap, low revenue mobilization…continued foreign exchange restrictions and banking sector vulnerabilities are dampening long-term foreign and domestic investment and keeping the economy reliant on volatile oil prices and production… Under current prices, (IMF projected real GDP (at 2010 prices) growth of 2.1 per cent in 2019 and 2.5 per cent in 2020) imply no per capita growth… They noted that a unified market based exchange rate and a more flexible exchange rate regime would support inflation targeting.”

The IMF team, to arrive at this conclusion, held discussions with the Finance Minister, Budget and Planning Minister, CBN governor, other senior government officials, parliamentarians, representatives of financial institutions, private sector, development partners and civil society. (It referred to the top government functionaries collectively as the authorities.) It should be promptly pointed out that the said authorities lack the power to operate outside the provisions of the laws of Nigeria, which in this case are particularly the CBN Act and the applicable Appropriation Act. So their brazen disobedience to Nigeria’s fiscal and monetary laws is not mitigated by the recourse to rigmarole, delay tactics and resistance to prompt implementation of the neglected unified market exchange rate as reflected in paragraphs 8, 31-35, 64 and elsewhere in the IMF report. The said authorities then turn round to scoop bumper estacode and lead Nigerian delegations cap in hand to borrow for wasteful spending from countries where the counterpart functionaries do not disobey and sabotage similar fiscal and monetary laws thereby pitilessly preparing the country for intensified suffering in the future.

Therefore, it cannot be overemphasised that it is the bounden duty of the said authorities to unwaveringly abide by the Appropriation Act exchange rate (AAR) which reflects the will of the Nigerian people as expressed through their representatives and their President. The AAR serves as the central and unified exchange rate about which the market exchange rate should float within a stability band. The band may be set narrower but not wider than AAR+/-3 per cent, which represents the prerequisite range for “ensuring monetary and price stability “, the first principal object of the apex bank as specified in section 2(a) of the CBN Act 2007. Note that the principal objects of the apex bank, which have remained unchanged in every version of the CBN Act since 1958, are the standard in successful economies. Indeed, the second principal object of “Section 2(b) issue legal tender currency in Nigeria” voids the detrimental multiple currency practices which began under the Abacha administration via the operation of forex domiciliary accounts without time limit. The military strongmen trampled on the CBN Act thereby sentencing the economy to slow death. All that should now end.

That said, the 2017-19 AAR is N305/$1: the other forex market segment exchange rates are aberrant and artificial and ultra vires CBN devaluations of the naira. The IMF correctly noted that the segment exchange rates distort economic decision making. They should therefore cease. The system is then left with AAR-based single forex market (SFM) exchange rate. When in actual operation, the SFM naira exchange rate both cuts off the usual IMF double-dealing posturing embedded in the report and enables the economy to surpass the various IMF projections and recommendations.


Now, for the sake of the soundness of the national currency via the SFM, the withholding of Federation Account (FA) dollar allocations should terminate and the retention of funds in forex domiciliary accounts should be restricted to a limit of 30 days. Public sector supply of forex to the market would be made up of FA dollar allocations certified by CBN dollar account balance statements. (FA beneficiaries may transact their forex in part or in full as they freely desire.) Private sector export earnings and other forex inflows for investment inclusive of independently generated public sector forex receipts, forex remittances to individuals and sundry receipts should be transacted in full within a specified short time not exceeding 14 days.

Forex demand should be aligned to the country’s development needs, which should take the form of a comprehensive and graduated import tariffs list drawn up by the National Planning Commission. Surplus forex should be sold to the apex bank to accrete genuine external reserves. The so-called CBN external reserves comprise withheld FA dollar allocations and are therefore fake. At paragraph 53 of its report, the IMF in an understatement describes the current reserves as “highly dependent on hot money.” Flighty foreign portfolio investments (FPI) – which are usually in the main sponsored by hostile foreign jurisdictions in organized swoops – are intended to drain away part of the fake external reserves. FPI does not make any positive contribution to the country’s economic development.

The SFM facilitates tax revenue mobilization in several ways. One, strapped for revenue and ridden by vast debts, FG should retrieve the revenue being diverted to forex market interlopers. Government revenue diversion via forex market segments has led to the painful economic dislocation. So FG retrieval of the revenue may be likened to a bone-setter resetting the dislocated economic bone for proper management of the economy. Accordingly, FG fixes the AAR for the market to hone within the stability band. Sellers and buyers of forex would pay a small commission to bank forex brokers because banks shall cease to be exchange rate-hiking forex dealers.

Consequently without initially changing the cost of forex payable on goods and services currently being imported, the difference between the AAR and the Investors’ and Exporters’ (I&E) rate (the I&E shall disappear) becomes forex access tax (FAT), which should be collected and remitted to FG by forex-broker banks. The FAT is akin to seignorage of yore. The IMF report indicates that 70-80 per cent of forex transactions go through the I&E at N360-365/$1. Suppose $50 billion is transacted in one year. Then the FG would mobilise or retrieve non-oil tax revenue amounting to N3 trillion in FAT as an addiction to receipts from traditional revenue collection avenues. The 20-30 per cent forex transaction via other forex segments (which shall also be rested) would fetch proportionately reduced FAT revenue. Given FAT, the FG would avert the IMF option of increase in the VAT rate, which does not enjoy much public support. But FIRS should focus on full collection of VAT at the existing rate to further swell the kitty.

Two, FG has the sovereign right to control forex demand by imposing FAT and fixing graduated tariffs on all actual and potential imports of goods and services with a view to protecting enhanced domestic agricultural and industrial output as well as accumulating robust genuine external reserves. Instead of the restriction of access to official forex for imports of 44 groups of imports, the right thing is to impose appropriately high discriminatory tariffs. That is the sure route to discouraging the smuggling and dumping of the items at heavy loss of non-oil revenue to smugglers while also protecting domestic production. That approach also assuages the IMF disapproval of restrictions to forex access.

Three, by ending the withholding of FA dollar allocations along with prorate deficit financing of the tiers of government, the SFM decapitates the resultant inflation-stoking excess liquidity and also buries the associated CBN’s 6-9 per cent inflation target range that propels tight monetary policy stance. The greatly widened revenue nets would bring about balanced budgets and budget surpluses. Given a very efficient budget implementation machinery, government could utilize the increased tax takings and additionally incur fiscal deficit up to the safe ceiling of 3.0 per cent of GDP. In all three scenarios, inflation expectation would fall within the safe range of 0-3 per cent just as lending rates would drop to internationally competitive mid-single digit or lower levels in response to low MPR-based accommodative monetary policy stance.

That outcome offers, firstly, an opening for conserving revenue. The interest charged on outstanding federal domestic debt would be slashed to the prevalent low levels. Thus part of the budgetary provision earmarked for debt servicing would be freed for spending on infrastructure and other socio-economic programmes. Secondly, there would become available abundant cheap bank credit to support private sector investments in diversified economic activities leading to high employment and rapid growth reaching up to double digit rate. As a result the extensive mass poverty would beat a hurried retreat right from the near term. Nigeria, therefore, stands to gain everything by running her economy the way it should be run.


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