By Les Leba
In the same manner that the Judiciary is regarded as the last hope of the common man, so also the Media has often been described as the voice of the people, but the role of the Media exceeds the mere expression of public expectations.

In truth, the Media, invariably also largely defines what the public perceives as right and wrong.  In other words, the views and opinions of the public are actually moulded by the Media; for example, whenever Nigerians engage in group discussions, it is easy to discern that the various positions taken derive from the arguments and inferences gleaned from media reports.

It is therefore possible for the public to be tragically misled, if media reports become huge doses of propaganda.  In this event, such propaganda could become an unobtrusive instrument of deceit and oppression.

In the context of our national indebtedness and increasing debt accumulation, government propaganda have been swallowed hook, line and sinker, and accordingly reported as benign and altruistic facts by the Media.  The Media perception of government’s unyielding liquidity mop up is a case in point; the following is an excerpt from a report titled “CBN to Auction N140bn in Treasury Bills” (pg 25, Punch 23/4/2012).

“The Central Bank of Nigeria has announced plans to issue N140.61bn ($894.86m) in treasury bills, ranging from three months to one year maturities at its regular monthly debt auctions this week.  The Bank said it would auction N34.88bn in 91 day, N45bn in 182 day bills and N60.73bn in 364 day bills on Thursday.

The CBN issues treasury bills regularly to reduce money supply curb inflation and help lenders (the banks) manage their liquidity”.

The last paragraph makes such CBN borrowings appear as economically benign, and supportive of economic growth, and this media interpretation of the mopping up exercise has become a permanent identical feature in reports relating to this form of short-term borrowing in all media, both print and electronic!

It is amazing and distressing to watch how the media presents this essentially government propaganda with aplomb as if they needed to educate the unlettered populace on the excellent work the apex bank is doing to keep the economy on an even keel.  A few discerning critics  will, of course, see beneath this CBN propaganda, but may feel intimidated from an open contradiction because of what appears to be universal public acceptance of the message.

Now, let us take a thorough look at what the CBN is actually doing in this aspect of control measures to help lenders manage their liquidity.  First, we recognize that the commercial banks predominantly are the lenders referred to in the above press release.

Secondly, we should similarly recognize that intention to reduce money supply is synonymous with an apparent acknowledgement of too much money in the system.  It is pertinent to ask whether or not we are talking of ‘too much money’ in the Nigerian money market, where the inability of banks to lend to the real sector has been blamed on the poor cash positions of these same banks.

In other words, how is it possible that the apex bank appears compelled to recognize the existence of too much cash in the system such that it could seek to reduce this burdensome cash volume, while it also claims that the banks have no money to lend to the real sector?

This appears to be an inexplicable paradox!  Much more curiously, still, is the reality of the huge cost of reducing this money supply with the sale of treasury bills by CBN.  The panache with which the Media reports such intention of government to reduce money supply with treasury bills creates a benevolent perception of government action, as if borrowing with treasury bills is a healthy income generating intervention by government!

But such perception will be far from the truth.  In plain language, government sale of treasury bills to reduce cash volumes in the system actually means borrowing money from the money market (particularly the banks) and implies payment of mouthwatering interest rates to lenders.

The strategy of liquidity mop up (reduction of money supply) is universally applicable, but in successful economies elsewhere, it would be unusual in the first place, to have so-called excess cash in the system simultaneously with a shortage of funds to lend to the real sector!

That apart, it would be political suicide in such successful economies, for their own Central Bank to pay an interest rate of more than 2% to the banks (its lenders) as cost of taking excess cash out of the system, and control inflation.

Conversely, in Nigeria, our own Central Bank willfully pays up to 15% interest rate as compensation to the banks for removing the perceived excess cash in their hands (this action is euphemistically reported in the Media as helping the banks manage their money supply); we may ask at what cost is CBN doing this!

For example, in a Punch newspaper report of 29/03/2012, titled “CBN to Issue N735.63bn T.Bills in Q2”, the paper indicated as follows: “The CBN last month sold (read as borrowed) N149.65bn worth of treasury bills with yields on the 182 day and 364 day papers lower than the previous auctions while the 91 days yields rose slightly.

A statement by the CBN had said that it sold N34.65bn of the 91-day treasury bills at a 14.8% rate, up marginally from the 14.4% yield at a previous auction.  It also sold N20bn worth of the 182-day bills at 15.5%, lower than the 15.09% previously and N85bn in the 364-day instrument at a marginal rate of 15.55%, compared with 16.89% at the last auction.  Traders had attributed the following yields on the longer dated treasury bills to the surge in demand from offshore investors”

Diligent readers of the above report will have observed that the object of CBN’s borrowing has been clearly stated as to take away supposedly excess cash in the hands of the banks.   CBN has clearly not indicated that the money taken away would be put to any productive use; indeed, the CBN has confidently often informed Nigerians that such moneys are simply kept sterile, without any alternative application, in Central Bank’s vaults and accounts records.

So, fellow countrymen, why would anyone feel constrained to keep idle, moneys they have borrowed at a cost as high as 15%, while the same monetary control procedure attracts less than 2% in successful economies?  Indeed, why would any bank not prefer to lend to the Central Bank at such high rate than lend to the real sector, with the attendant obstacles and impediments militating against their success?

You will also notice the indication in the Punch report that offshore investors are now eagerly interested in government bills and bonds; this, of course, is not surprising, as even distressed economies such as Spain in the European Union are not so reckless.

For example, as battered as the Spanish economy currently is, a Daily Independent Newspaper report of 19/4/2012, pg 24, titled “Spain Sells More Bills Than Scheduled as Yields Increase” indicates as follows: “Spain borrowing cost rose at a sale of one year and 18 month bills for the first time since November, as Prime Minister, Mariano Rajoy, battles to convince investors the country won’t need a bailout.

Spain sold 12 month bills at 2.623% up from 1.418% at the last auction on March 20.  The Bank of Spain said in Madrid on Tuesday.  The Treasury also sold 18 month bills at 3.11% compared with 1.711% last month”.

Well, readers will observe the huge difference in the cost of borrowing for a depressed economy in Europe and a successful economy consistently growing its GDP at over 7%.  In similar vein, the Nigerian Debt Management Office has in the last five years also accessed long-term funds at costs, which are as high as over 16%.

Instructively, the Spanish economy in spite of its travails “auctioned bonds maturing in January 2015 at an average of 2.89%…, while bonds due in October 2016 yielded 4.319% and securities maturing October 2020 were sold at 5.388%.”

In the above scenario, if you ask me, it would appear commercially astute for Spain to borrow at such modest rates and lend to the Nigerian government at over 15%; indeed, in no time at all, Spain would be rid of its debt overhang!!

Some critics might consider it inappropriate to make a comparison with a ‘thriving economy’ in Europe; so, it may be instructive to compare some aspects of our economy with that of our brothers in South Africa.  The rate of inflation, for example, in South Africa currently hovers around 6.1% compared to the CBN Governor’s projected 14 – 15% in Q2.

The South African Reserve Bank also maintains its Monetary Policy Rate at around 6%; compare this with Nigeria’s MPR of 12% with a three-percentage point band.  It should therefore, not be difficult to deduce that in spite of our healthier reserve base, much longer import demand cover, and our huge crude oil export potential, the South African government would be able to borrow at a much cheaper rate than its Nigeria counterpart would.

In the light of all the above, it must be worrisome to discerning critics that media perception and reports of the nature and cost of government borrowing appear to be inconsistent with the public expectation of a beneficent  impact on economic growth and social welfare.

Could we imagine, on the contrary, how public perception will change if, in place of the dubious propaganda on government borrowings, Media reports were as follows: “The Central Bank has indicated that even though the banks do not appear to have money to lend to the real sector, the apex bank has intervened in reducing what it considers to be an excessive cash flood in their hands; to this end, the Central Bank has decided to borrow part of the surplus cash in the system from the money market (predominantly the money deposit banks).

The Central Bank would, therefore, borrow over N200bn this month and pay the money deposit banks an average cost of about 15%; it does not seem to matter to the apex bank that it is reckless to pay such a high c
ost of borrowing for money you have no use for, and will therefore be kept idle in CBN coffers.  Worse still, the CBN created the scourge of excess cash in the system in the first place, when it paid naira allocations for dollar-derived revenue.

If CBN’s and the Debt Management Office’s borrowing were faithfully described in the preceding format, I am sure most rational Nigerians will be alarmed at such recklessness, especially when inflation, the object of such borrowings remain largely untamed.

SAVE THE NAIRA, SAVE NIGERIANS!