A failure to save for the rainy day, as well as poor monetary and fiscal policies, were partly responsible for Nigeria’s current recession, according to the Central Bank of Nigeria (CBN). The apex bank governor, Godwin Emefiele at a media parley last weekend blamed external factors, particularly the crash in global oil prices, for the worst economic crisis in 30 years. Emefiele disclosed that efforts at jump-staring the economy are being sabotaged by commercial banks that are flouting the policy on lending to the real sector by diverting CBN proceeds into buying treasury bills and bonds for higher yields instead of lending to businesses. It is unacceptable that given the rash of contradictory monetary and fiscal policies that have thrown the economy into a tail spin; neither the government nor the CBN has any clue on halting the slide into economic suicide. President Buhari’s superficial understanding of Nigeria’s economic challenges is further compounded by Emefiele’s trial and error approach to policy interventions for an economy in crisis. Stupidity matched by incompetence is clearly a case of the blind leading the blind. The situation has passed crisis point and Nigerians are asking: who is in charge of the economy?
Without acknowledging his own incompetence, Emefiele recalled that when it was very buoyant, Nigeria frittered away about $66 billion or an average of $6 billion annually funding Bureau de Change (BDCs) operations over 11 years, beginning from 2008, when the country’s foreign reserves stood at $62 billion and oil was about $120/barrel. He said such funds could have been kept for the rainy day or invested in infrastructure development that would have buoyed economic activities. On a note of self-righteous indignation, Emefiele said if government had heeded his advice to sell off some of its equities in oil and gas assets, Nigeria could have made $20 billion that could stimulate the economy and boost spending.
On why he failed to take proactive measures that could have checked the recession, the CBN governor hinted that Nigeria was misled by its foreign partners when it floated its currency. Such an innocuous comment betrays Emefiele’s cluelessness and poor judgment. The government should find another man for the critical job of turning around the country’s economic fortunes. The President requires no reminding that he is constitutionally mandated to pursue sound economic policy options at all times.
Blaming the recession on oil prices is a distraction. Policy prescriptions to stabilize the economy have been too pedestrian, riddled with ambiguities and buffeted by macroeconomic instability, high inflation and interest rate, sliding exchange rate, comatose real sector, high unemployment and rising poverty. To wit, every policy intervention made so far to revive the economy contradicts the prescriptions of economic theory for dealing with macro-economic stability and general socio-economic and political crisis. It is therefore, not oil curse but CBN curse of excessive fiscal deficits substituted for oil earnings that is the bane of Nigeria’s economic under-performance.
The CBN still holds Federation Account (FA) dollar accruals from oil sales as its external reserves and in their place disburse to FA beneficiaries freshly printed naira amounts purported to be their equivalent, which they are not. This is the lie Nigeria lives and which must not continue. It amounts to substituted deficit financing that has no redeeming value to the economy. The resulting unintended and ruinous excessive fiscal deficits instigates the odd reality of government borrowing back its own funds from commercial banks and crowds out the real sector from available credit. Emefiele knows better.
The oil price-based fiscal rule instituted in 2004 helped Nigeria to save $22 billion during the Obasanjo administration. Those savings were used to cushion the impact of the 2008/2009 global financial crisis on the economy, when fiscal stimulus of 5% of GDP was financed from the savings. The CBN virtually squandered a substantial part of reserves in defending the naira. Now the lean days are here and there is no reserve to save the day.
Three pertinent issues have now emerged. First, the relative huge windfalls from oil revenue in the past five years were not in doubt. As oil prices averaged above $100 per barrel in those periods, Nigeria’s total crude oil sales was estimated at about $470 billion, not too far from the $489 billion in the previous 15 years combined. That is, the total crude oil sales of close to half a trillion dollars in nominal terms or unadjusted numbers under the Jonathan administration were only 5% below that of the Yar’Adua, OBJ, Abdusalami Abubakar and Sani Abacha administrations combined. Second, the Excess Crude Account was devised as a mechanism to help government save oil revenues above approved budget benchmarks in period of oil boom.
Unfortunately, the ECA was rapidly depleted by the Jonathan administration as state governments squandered their monthly revenue allocation with reckless abandon. However, a pertinent question that is often asked is: while the states were profligate, what did the Federal Government do with its own share of the ECA funds? Suffice to say that by failing to save, the economy was primed to sink. Nigeria’s low domestic savings and investment rates have substantially undermined the country’s socio-economic development. This savings deficit has led to the present economic situation of low investment, low economic growth, high unemployment, high inflation and misery index.
As a result, Nigeria’s economic base, namely, infrastructure, human capital, knowledge and technology, has been overly degraded. Low public savings and poor public infrastructure base have combined with corruption, capital flight, poor investment climate, insecurity of property rights and macroeconomic uncertainty to undermine private domestic savings and investment in tangible and intangible assets. Successful and sustained economic development requires high levels of domestic investment which needs to be financed by domestic savings from the public, business and household sectors.
Emefiele was honest enough to admit that: “in 2005 the CBN was amongst a few central banks in the world allocating dollar cash for bureau de change operations, and by the time it was stopped in January 2016, the CBN had disbursed $66 billion to fund cash operations of BDC in Nigeria. What that meant in 11 years is that we spent $66 billion funding operations of BDC, which came to an average of $6 billion in a year. If we had thought of other ways to utilize our reserves in 2008, when it was as high as $62 billion, certainly we will not be where we are today.”
It is a telling sign of cluelessness that Emefiele; the man invested with exclusive monetary responsibility, would by his actions and inactions, plunge the country into a recession, and then blame others for his pig-headed failures. The above statement is crying over spilled milk and best advertises everything that is wrong with monetary policy in Nigeria. The country is hurting, yet the CBN governor is dishing out blame. Who is Emefiele blaming? This man has done nothing but use the CBN to make money for his banker friends to the detriment of Nigerians. Emefiele’s continuous stay at the apex bank is a huge disservice to Nigeria. And as long as he remains at the helm of the apex bank, the Nigerian economy will move from recession in the emergency room where it is presently hospitalized; into a depression at the intensive care unit, where it will be placed on life support. Whither the Nigerian economy?
