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The presidency, CBN and productive economic reforms

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CBN office


President Muhammadu Buhari lately hosted members of the Federal Executive Council (FEC) over his re-election and spoke frankly about the severe unemployment in the country. The avowal was inevitable because government spin doctors had been disarmed and were unable to cover up in verbiage the poor economic scorecard which, following its dramatisation internationally, had earned for the country the inglorious prize of ‘poverty capital of the world’ beginning at end-May, 2018. At the point of the admission, Buhari had presided over the country and been in charge of the economy for 45 months and three days. In truth, the dire state of the economy had long been foretold and diagnosed to be the end product of the reckless default by successive heads of government. Yet Buhari admonished the FEC that to attend to his campaign promises on securing the country, reviving the economy and fighting corruption in “my last lap of four years is going to be tough” on the people.

However, well ahead of the commencement of the last lap, the shape of the looming tough measures began to emerge. Firstly, CBN in military style stopped “effective immediately” on the fifth instant importers from accessing forex for textile products. By that move, CBN further put Nigeria out of work.

Secondly, a rating agency listed some “hard choices with no easy way out” confronting the Buhari administration in the 2019 budget year on account of the country’s present debt service-to-revenue ratio of over 60 per cent and capital expenditure-to-nominal GDP ratio of 2.1 per cent which is tending to 1.1 per cent in 2019. They include, one, Federal Government should further borrow in order to meet interest payments, statutory transfer and payroll obligations. Doubtless, such a choice would worsen the unsatisfactory debt/revenue ratio and push the country into debt trap peonage. Two, Federal Government should cut spending. But would the adoption of such recommendation not lead to accumulation of fresh salary and pension arrears over and above the unsettled pension/contractor arrears? To spread economic pain in this manner would at once be insensitive and an invitation to civil unrest thereby undermining the public security which the administration has promised to improve.

Thirdly, Federal Government should end petrol subsidy in order to plump up revenue. An otherwise desirable policy which offers the incentive of cheap energy, petrol subsidy has over the years fallen victim to high level of corruption even with Buhari, the self-professed corruption fighter, as minister. Therefore, to let go the corruption-suffused petrol subsidy would serve the public interest well. Four, Federal Government should not only adopt market reflective adjustment to the naira exchange rate which the lunatic fringe already deems to be ripe for N670/$1 but also embrace market reflective electricity and gas tariffs among others. But what market do they really mean? Disappointingly, there is no inkling that the pain-inflicting tough decisions would outperform the lackluster 2018 GDP growth rate of 1.93 per cent. Economic well-being is promoted by rationally choosing beneficial options.

Now, it takes a working economy to generate self-sustaining revenue and surpluses. As earlier noted, the CBN sleeps on certain facts. For example, Q42018 CBN Economic Report shows Federal Government incurred fiscal deficit/GDP ratio of 2.6 per cent (which gives inflation expectation of 2.6 per cent). That inflation level is in accord with the Appropriation Act. Axiomatically, spending of realised revenue by government leads to zero or negligible inflation. Thus spending of non-oil revenue contributed zero to inflation in 2018. Similarly the under-spending of the budget owing to revenue shortfall, the more or less unchanged level of loans to the private sector from the previous year, layoffs of workers and rising unemployment all signified plunging effective demand and pointed to deflationary outcome that would ordinarily require expansionary monetary measure to grow the economy.

However, against the intendment of the budget, inflation in 2018 stood at 12.4 per cent thereby confirming that fiat printed CBN deficit financing substituted for withheld Federation Account allocations and the attendant excess liquidity along with ultra vires CBN devaluation of the naira in the various forex market segments altered inflation from the beneficial rate of 2.6 per cent. The adverse economic features caused by the very high inflation and resultant contractionary monetary policy stance constricted economic growth and so put Nigeria out of work. This recurring and unbeneficial economic outcome is glaringly inconsistent with the relevant Appropriation Acts.

Therefore, in place of the proffered hard choices, Buhari needs to implement the fiscal and monetary aspects of the Appropriation Act as legislated and assented to by him. Only that step will put Nigeria squarely to work and make the economy roundly productive. It entails properly converting the country’s total forex receipts via a single forex market in which the naira rate floats within a stability band centred around the dirty or managed exchange rate specifically set in the Appropriation Act. In the ensuing normalised single forex market (SFM) regime, the CBN will become better defined by its role as bank of last resort and not jack-of-all-trades. Forex supply and demand volumes in the SFM would become pliable tools for the sovereign Nigeria Federal Government, which bears exclusive monetary responsibility, to pursue coordinated national economic objectives via relevant agencies.

And so, it becomes manifest that, for example, by restricting access to forex for imports of some listed items since 2015 (it was recently extended to textiles), CBN usurped the functions of other agencies. Besides, the step taken by CBN, which exercises no monopoly control over forex, is an open invitation to hostile foreign (forex) jurisdictions (there is permanent trade warfare and competition among countries) and pushers of illicit funds to oil large scale smuggling of restricted-forex and contraband items into the country not only at heavy loss of tariff revenue but also to the detriment of the textile industry, which faces high unutilised installed manufacturing capacity. Proceeds of smuggling are sold for the country’s hard earned forex and freely transferred out of the country.

International trade warfare (for the protection of local agricultural produce and manufactures) can only be successfully waged with tariffs. It is the responsibility of the National Planning Commission (which happens to be the secretariat of the National Economic Council) in the Federal Ministry of Budget and National Planning and the Ministry of Industry, Trade and Investment to shepherd the fixing of graduated tariffs for all categories of imports to reflect the country’s needs as an adjunct to the Appropriation Act. The tariffs should be regularly updated while imports that competewith local output should attract appropriately high tariffs. The all-imports tariff list would ordinarily play the key role in actualising the Nigeria Industrial Revolution Plan 2014 that predated the Buhari administration. The NIRP objectives are permanent and not administration-specific. NIRP contains sectoral schedules for developing agricultural and local natural raw materials to feed local industries. Tariff-girded implementation of NIRP puts Nigeria to work.


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CBNMuhammadu Buhari‎
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