The priceless gift to Nigeria – Part 2
Demand for naira funds and forex via the SFM would include pent-up quest for naira funds by the dollar-laden tiers of government, other listed forex recipients in search of naira funds and tempered national need-based eligible imports. Factor in conscious effort to build up external reserves and maintain favourable balance of payments position. In light of the engineered forex oversupply profile, conversions/ transactions in the SFM will tend towards the lower half of the AAAR+/-3.0 percent stability band. Given the N305/$1 AAR, assume SFM transactions are executed at the borderline rate of AAR-3.0 per cent or N295.85/$1. The SFM does not accommodate exchange rate premium.
However, in addition to that market-determined exchange rate, importers of goods and services are required to pay forex access tax (FAT) in naira. This tax ranges from zero for adjudged essential imports to several multiples of the certified (f.o.b) item unit price in naira for other imports which should be discriminatorily taxed in order to protect and promote local production. In effect, current forex market segment purported exchange rates harbour varying amounts of FAT. Accordingly, for example, goods and services procured using forex accessed from the flawed I&E window at N360/$1 should be deemed to have accrued FAT of N64.15 per dollar accessed. FAT should be collected on behalf of government for prompt transfer to government kitty by forex-brokerage DMBs.
Now, if CBN appropriately operated SFM, how much FAT would be outstanding from I&E transactions alone? Media reports indicate that from inception in April to December 2017, I&E forex transactions amounted to $23.9 billion. Hence FAT accruable to FG totalled (N23.9 x 64.15) billion or N1.533 trillion. This non-oil revenue accrual, upon transfer to government coffers, could have reduced the 2017 FG fiscal deficit of N2.138 trillion to N605 billion or 0.01 percent of GDP. Furthermore, because SFM-sourced forex for imports is routed through the CBN limbo forex account, applicable merchandise imports would attract appropriate import duty payments thereby additionally whittling down the 2017 fiscal deficit as well as frustrating smuggling. Also sight should not be lost of the macroeconomic stability impact of the above development.
There is room for updated analysis. The 2017/18 budget ran from 12/6/17 to 11/6/18. A quarterly adjustment puts the I&E forex transactions in the second half of 2017 at $15.9 billion. In the first half of 2018, forex transactions via the I&E segment amounted to $29.7 billion. Thus in the full 12-month budget cycle, I&E forex transactions totalled $45.6 billion. Therefore, the FAT accruable to FG stands at $2.925 trillion. Note that the outstanding 2017/18 FAT accruals exceed the non-oil revenue projections. The amount is almost double the sum of N1.58 trillion reportedly spent on capital budget in that fiscal cycle. Hence under SFM, the 2017/18 budget would record a surplus thereby eliminating any basis for domestic and external borrowing.
And there appears an element of serendipity. Assume the country is restructured and there is reversion to the pre-military era reserves sharing formula that gave the greater proportion of the Federation Account to the federating units. By virtue of its exclusive responsibility for monetary issues, FG owns SFM-generated FAT and external reserves. Today, the FG’s inherited minority revenue share supplemented by revenue accruable to true-federalism exclusive functions would still give the FG enough financial clout to maintain significant level of federal presence throughout the country.
Instead of honing such benefits, the deliberations of the MPC since its 239th meeting in July 2014 have belatedly produced the Revised Foreign Exchange Manual ( August 2018).. But the manual is a far cry from what the CBN Act and the annual Appropriation Act mandate the leadership of the CBN to deliver. Therefore, from being a concerned MPC member-at –large, this writer hereby volunteers to be appointed Mender of the Economy (MEcon, for short) by order of Mr President ( with due respect) to take charge of the Central Bank of Nigeria for one year during which period the incumbent CBN governor should proceed on one-year-long leave of absence with full pay.
The MEcon’s job description will be to (i) actualise the principal objects of the apex bank and strictly adhere to provisions of the CBN Act: (ii) float the naira in a single forex market where the naira exchange rate will be centred on the rate set in the Appropriation Act; (iii) lower and maintain inflation within the range of 1-3 percent in conformity with the inflation expectation of the budget; and(iv) set a corridorless monetary policy rate and guarantee 4-7 per cent lending rates which are positive in real terms . The MEcon will be placed on a token salary of N1.00 (one naira only) per year and shall vacate office after 365 days. The Nigerian economy must work for the benefit of the Nigerian people.