Amid the sliding profile of Nigeria’s revenue base, following the steady diminution in oil receipts (not oil revenue); the decision by the Central Bank of Nigeria (CBN) to devalue the naira, without any measures to mitigate the effects and prevent inflation in the country, portends far-reaching implications for the economy. Already, eight state governments have been identified as unable to pay salaries, while about 12 have obtained approvals to raise their respective debt profile by way of borrowing. Nigerians who are traumatized by lack in every area, and groan under the yoke of poverty are the ultimate losers. Thus, the hysteria over falling oil receipts being stoked by the government and the CBN is uncalled-for. It is normal for government revenues to rise and fall from time to time with budget sizes correspondingly expanding and shrinking. What is needed is an end to CBN’s bungling of its statutory responsibilities, which appears increasingly to be intentional. The Goodluck Jonathan administration should embrace correct economic management policies as it is mandated under Section 16 of the 1999 Constitution. This rape of the Nigerian people should end.
After a special Monetary Policy Committee (MPC) meeting, last Monday, CBN Governor, Godwin Emefiele, announced the following measures: the Monetary Policy Rate (MPR), the rate at which CBN lends money to money deposit banks, will be raised from 12% to 13%; increase in the Cash Reserve Requirement (CRR) for private sector deposit from 15% to 20%; and devaluation of the naira in its exchange with the US dollar from the official N155 per $ to N168 per $. The bank also advised the federal government to further cut down the proposed oil benchmark for the 2015 budget below the new $73 window to be on a safer position as the price drop appears to be consistent. At the post-MPC briefing, Emefiele who is the Chairman of the MPC explained that the action was meant to absorb the shock of the impact of the oil price fall and also to discourage frivolous borrowing by politicians to spend for campaigns. It is also aimed at protecting the Nigerian Foreign Reserves which dropped from $40.1 billion to $36 billion because the apex bank had been dissipating energy trying to save the naira.
The monetary measures are coming barely a week after the Federal Ministry of Finance (FMF) announced fiscal austerity measures in response to the drastic drop in oil prices which saw the federal government downgrading the proposal for next year’s oil budget benchmark price from $78 to $73. To begin with, the devaluation of the naira from the official N155 per $ to N168 per $ is inconsequential because in the black market, the naira sells at N182 to a dollar. For devaluation to have any impact, particularly on the naira and on foreign reserves, the naira should be devalued to N300 per $. This will reduce pressure on the naira and pay off the domestic debt that have cost N2.8 trillion in debt servicing between 2011 and 2014. Besides, it makes no sense for the CBN to continue squandering the country’s depleting foreign reserves. Between now and February 2015 (when the elections are over), about $20 billion would be spent from Nigeria’s foreign reserves defending the naira; which will still depreciate as foreign portfolio investors (FPIs) gradually dumping the naira and continue to exit Nigeria. The $20 billion if invested in the power sector would drastically reduce the cost of doing business in Nigeria..
The CBN governor also said the current challenge requires bold policy moves on both the demand and supply sides of the foreign exchange market. Without prejudice to this commitment, it is obvious that the measures adopted are a diversion from the paved road to economic disaster prepared by the fiscal and monetary authorities, which represents the worst degree of national shame. Pertinently, domestic interest rates are high and unattractive because the FMF through the Accountant-General and the Federation Account Allocation Committee, infringes the 2007 CBN Act and prevents the CBN from correctly implementing the managed float naira exchange rate regime which the FMF itself dictates every year in the medium term expenditure framework that the President presents to Parliament.
Ordinarily, the supply of forex under this regime comprises forex made available for exchange to naira funds by FA beneficiaries like international oil companies (preferably via their domiciliary dollar accounts). To prevent forex abuse, the demand for forex can be controlled by imposing tariffs, and the sale and purchase of forex in commercial volume should be transacted through the banks. This will guarantee that supply of forex in the market always exceeds demand given the high volume of forex at the disposal of FA beneficiaries that require naira funds for government business. With the supply of forex constantly more than eligible demand, the CBN absolutely has no reason to defend the value of the naira but should occupy itself with its role as bank of last resort, by providing only the naira amounts required to meet the demand gap in exchange for the surplus forex, and in the process, accumulate genuine external reserves.
The trouble therefore with the economy is not the volume of oil receipts but the FG’s unrelenting refusal to allow FA beneficiaries to convert oil receipts to naira revenue through deposit money banks for budget expenditure. The FG gets the CBN to withhold oil receipts in exchange for spurious naira equivalent printed by the apex bank and disbursed to the tiers of government for budget spending. That way the naira equivalent translates into unlegislated excessive fiscal deficits. Proper management of oil proceeds demands that deposit money banks (DMBs) be allowed to play their inherent intermediation role between dollar-bearing FA beneficiaries and forex end-users. As a result, the economy has been engulfed in persistent excessive fiscal deficits with the attendant poisonous harvest of excess liquidity, high inflation, depreciating naira value, monetary tightening measures, and high lending rates. It also explains tardy budget preparation and approval by the legislature. Needless to add, the withheld oil receipts, besides being prone to abuse by politicians, are dissipated in a futile war against the fallout of the unlegislated excessive fiscal deficits. It is all a grand deception.
In light of the ample inflow of forex even with falling oil receipts (portfolio investors’ forex sucks and drains away disproportionate amounts of needed forex for beneficial use and should be discouraged), under the managed float system, the relationship between supply and genuine demand for forex for eligible transactions will make the naira to assume its realistic value and become stable and strong with surplus forex steadily flowing into the CBN to form an investable deep pool of FG-owned external reserves. For the Federal Government, accumulated external reserves constitute a supplementary fiscal buffer. In effect, properly managed, the Nigerian economy should boom and be among the countries that influence global economic recovery in difficult times. This is what managers of Nigeria’s economy have failed to do and for which they have earned the need to be fired.
