It is bad enough to ever have to borrow one’s money back, but for our own Central Bank to have done so for so many years at rates of between 13 and 14 per cent, as recently admitted by Governor Lamido Sanusi, can at best be described as an unfortunate moral hazard, which probably borders on economic sabotage!
Indeed, according to Alhaji Suleman Barau, Deputy Governor at the CBN, who corroborated Sanusi’s observation, the three tiers of government had over N3tn lodged in zero-interest-yielding accounts in commercial banks by June 2013. Barau also revealed that the usual custom of removing the systemic surplus cash, instigated by the presence of such free government funds, from banks vaults, may have already improved the profitability of banks by about N300bn, even when they added no value to the economy; thus, despite our economic and infrastructural hemorrhage, in addition to almost N5tn from CBN and AMCON cash interventions in recent years, banks may have enjoyed a bonanza of over N3000bn for doing nothing in the last 10 years! It is even worse that regardless of the huge cost of debt service, the funds borrowed were simply kept idle (sterilised) by the apex bank, in order to control excess cash supply in the system!
The easy money to be made from warehousing free government funds, produced aggressive marketing strategies, which included ambitious targets for delectable, sparsely clothed young women, called relationship officers, as foot soldiers to attract deposits! Inevitably, salaries and budgeted projects of MDAs were deliberately delayed for as long as possible, so that public officers could earn off-the-record kickbacks from those banks, which kept free government funds.
Consequently, Sanusi’s recent directive that banks must keep 50 per cent of their government deposits inactive, as reserves, is obviously an attempt to stem the folly and the inexplicable fraudulent practice of government borrowing back its own money at horrendous costs!
However, there is no positive change, four weeks after the announcement of the new directive, as the Debt Management Office and CBN have since borrowed about N300bn with treasury bills and bonds, while simultaneously paying out over N200bn to redeem such matured government debts, to the same banks! Furthermore, the average cost of lending to the real sector has also risen above 25 per cent, while the naira exchange rate has paradoxically come under heavy downward pressure!
The latest addition of cash deposits from such MDAs as NNPC, Customs and Federal Inland Revenue Service, to the 50 per cent Cash Reserve Requirement will not achieve any meaningful purpose, but may, in fact, be counterproductive, as further reduction of the extant cash surplus may only lead to still higher cost of funds, which will inevitably reduce prospects of economic growth, while increasing the rate of unemployment and the impact of ravaging inflation on the poor.
It is inexplicable that both the federal executive and the National Assembly appear unperturbed by such a suffocating predicament, but it is, worse still, that civil society, including Nigerians of great intellect worldwide, and the acclaimed experts in CBN’s Monetary Policy Committee turned blind eyes to the apparent fraud of government borrowing back its own money at ridiculously high interest rates for over 30 years! Indeed, the label of fraud for such reckless management of public funds is probably a poor euphemism for a more vicious crime of economic sabotage!
How, for example, does one explain that, despite hundreds of billions of naira government’s free funds in the hands of banks in 2009, CBN, simultaneously, curiously maintained a mere one per cent Cash Reserve Ratio (CRR) for all deposits, including government deposits, but then, proceeded thereafter, to mop up the inevitable resultant cash surfeit, by committing government to heavy borrowing at double-digit interest rates from the same banks!
Interestingly, the CBN mischievously blames excessive government spending for its failure to bring about lower single-digit interest and inflation rates!! In contrast, international best practice is to increase government spending, in order to create demand, boost industrial activities and job opportunities, in any economy plagued with mass unemployment like ours! CBN cannot therefore make increased government spending the scapegoat for inflation and high cost of funds in an ailing economy, which requires urgent cash interventions to stimulate demand and production, and reduce mass unemployment!
Incidentally, the Guardian newspaper editorial of August 28, observes that “If public sector deposits in June 2013 constituted 20 per cent of the N15tn bank deposit base…, where then is the touted public sector dominance? … 50 per cent public sector CRR is a half measure, which the next MPC meeting should change to 100 per cent, and make irreversible…; such a measure will not induce banking distress, because there remains a further N12tn of private deposits that… endows the bank with a maximum lending capacity of N96tn (with CRR at 12 per cent)!!”
Whether anyone chooses to agree with this analysis is not important; the truth remains clear that CBN is the villain that instigates the oppressive burden of excess cash in the system, when it captures our dollar earnings and substitutes same with monthly naira allocations. That is why CBN’s self-styled “own dollar reserves” grow as naira liquidity increases, and propels government to borrow back its own funds at an oppressive cost to cage spiraling inflation! It is unusual for a Central Bank to make a claim to its own foreign reserves, which exist outside a nation’s consolidated revenue fund!
To be fair, Sanusi inherited and sustained this fraudulent shenanigan in monetary policy management; nonetheless, this oppressive system continues to create ample room for corrupt enrichment in the management of public funds. For example, fuel subsidy payments and the oddity of government borrowing back its own money at ridiculous interest rates, cost our nation over N2tn annually, with no value added. Undoubtedly, our severe industrial and economic deprivations will continue for as long as we all close our eyes, while CBN’s monetary policies continue to make us poorer, just as CBN’s ‘private’ reserves conversely swell!
Curiously, on the fiscal front, the same vein of economic sabotage is also discernible in the manner projected revenue in annual budgets is constantly deliberately understated, with extremely conservative crude export price/output ‘benchmarks’, so that heavy government borrowing become necessary to fund the ‘ghost’ deficits deliberately created in annual budgets! It is of no consequence to our economic managers that our existing so-called ‘surplus’ or excess public funds remain domiciled in zero or modest interest yielding accounts, while government sustains unnecessary heavy debt accumulation at obnoxious interest rates, to fund the non-existent deficits!
BY Les Leba
SAVE THE NAIRA, SAVE NIGERIANS!!
