In view of the apparently ‘boundless’ funds at the disposal of Nigeria’s Central Bank for its independent interventions, observers, including the National Assembly, have frowned at the propriety and the shrouded protocol surrounding the substantial values and the choice of beneficiaries of the apex bank’s bonanza!
The CBN, however, insists that these interventions are in consonance with its enabling Act, and therefore distinguishes its cash gifts as Corporate Social Responsibility (CSR), in furtherance of its primary mandate for “price stability” that will drive real economic growth.
The following examples of CBN’s interventions in some sectors in recent years are by no means exhaustive; for example, Bayero University, Kano, has so far collected N1bn out of a projected N4bn donation; the University of Benin similarly got an ‘awoof’ of N500m. Lately, the media reported CBN’s donation of N10bn for infrastructure capacity and manpower development at Uthman Dan Fodio University, Sokoto.
The Vice Chancellor of University of Lagos, Prof. Rahman Bello, had earlier also confirmed a N10bn project intervention from the CBN! Furthermore, Mr. Kabir Nuhu Koko, CBN’s Deputy Director for Projects and Planning, similarly confirmed that CBN has selected “six secondary schools, six tertiary institutions and six public sector institutions across the six geopolitical zones of the country for its intervention in 2013”. The criteria for selecting beneficiary institutions from each geopolitical zone are probably only known to CBN. Nonetheless, some observers may note that the establishment of a “project and planning services department in the CBN for such interventions may also be another wasteful duplication of the existing primed capacity and manpower structures of the Ministry of Education”.
In similar vein, CBN’s donation of N100m to Boko Haram victims in Kano and the apparent afterthought of extending similar financial assistance to victims of the bomb attack at the Catholic Church, Madalla, Niger State, appear to also duplicate the functions of the National Emergency Management Agency, which is constitutionally empowered to receive financial and technical aid, and also coordinate the activities of all voluntary organizations engaged in emergency relief operation throughout the federation.
The value of the above social interventions however, pales into insignificance in comparison with the trillions of naira empowerment to prop up banks and grow the economy with onward supply of low cost loans to the real sector!
The intervention funds of well over N3tn in the banking sector include the initial N620bn injected to rescue 10 banks in 2009; additionally, over N600bn was expended by AMCON to recapitalize the three bridge banks in 2011, while about N1.725tn was additionally spent by AMCON to acquire the non-performing loans of banks in the wake of the global financial crisis.
In response to public concerns, CBN management insists that its banking sector interventions are loans and not expenditure; besides, according to the Governor, CBN is “empowered by its enabling Act to invest in debentures, in institutions such as Bank of Industry (BOI)”, through which it intervened in the aviation, agriculture and small and Medium Enterprises (SMEs) sectors; accordingly “as long as loans are not expenditure and we are empowered to grant loans, then the legality of our action… is not questionable”!
The Governor insists that CBN’s spending does not require appropriation, since it is provisioned for outside the consolidated revenue fund, and “its expenditure provisions derive from the proceeds of its investments and loans or printing money, both of which are covered by the CBN Act.” In other words, the funding for CBN’s various CSR interventions are sourced from its profits; nevertheless, the ‘lucrative’ investment portfolios that generate the funding of CBN’s huge CSR interventions may still need clarification!
Lamido Sanusi defends CBN’s intervention in the rescued banks as “Its statutory role as the lender of last resort, in the context of providing liquidity in the system when banks face liquidity challenges in meeting their obligations”; consequently, “if CBN does not lend money to banks or government, then you don’t need a Central Bank; to lend money is why we exist”.
The preceding, however, may sound economically bizarre in the light of the recent belated recognition by the Governor that the unyielding pressure of systemic surplus cash has induced the aberrant reality of government compulsorily, endlessly “borrowing back its own funds from banks at rates of interest between 13 and 14 per cent”.
Thus, despite over N3tn cash ‘loans’ to support banks, the apex bank simultaneously also ‘inadvertently’ borrowed trillions of naira of government deposits from the same banks!! The CBN claims that the bailout funds were strictly loans to the banks, but pray, what rates of interest did the banks pay in comparison to the cost of government’s borrowing from those same banks, which also have custody of government’s interest-free deposits? It would require superhuman creativity to make such a business model profitable enough to sustain CBN’s bountiful interventions to its beneficiaries, especially when the public debts so acquired are simply sequestered (kept idle) to reduce money supply and the threat of inflation rather than strategic application to any interest-yielding or capacity-enhancing investment!
Evidently, the healthy balance of over $40bn self-titled ‘CBN own reserves’ could never have been accumulated from such an impractical business model; the awkward reality, of course, is that, while CBN’s dollar reserves keep increasing with minimal yield, the government still goes cap-in-hand (till date) to seek domestic and external loans at oppressive interest rates!! Instructively, the more dollar revenue CBN substitutes with naira in monthly allocations, the higher will be CBN’s dollar reserves, while the burden of surplus naira created by CBN’s unilateral exchange will similarly increase and instigate the ‘curse’ of government borrowing back its own money! In simple language, CBN’s current bountiful reserves of over $40bn is the product of this sleight of hand, which unleashes the oppressive burden of systemic surplus naira, which the same CBN turns round to borrow back in order to prevent liberal access to cheap credit, even to SMEs!!
Not surprisingly, this strategy has failed to achieve CBN’s constitutional mandate for price stability, while banks also remain resistant to supporting the real economy. Curiously, CBN’s sectoral interventions have generally failed to produce the desired impact; for example, the N35bn to Air Nigeria may have become money down the drains, while conversely, the bailout packages in the U.S. have since repositioned both the automobile and mortgage subsectors. Similarly, CBN’s latest package of over N200bn to the SMEs subsector may also fail to make any meaningful impact, if cumulative costs of funds exceed seven per cent to loan beneficiaries. Worse still, CBN continues to borrow back government deposits at double-digit interest rates, even as we write!
SAVE THE NAIRA, SAVE
BY LES LEBA
