By Henery Boyo
THE N6.07 trillion 2016 budget was celebrated as the biggest annual fiscal plan ever and expectedly induced public expectation that the projected increase in expenditure would stimulate economic growth and increase job opportunities.
Conversely, however, in December 2015, the Central Bank had already resolved and projected to remove what it perceived as excess funds of about N6.0tn from the money market between Jan-Dec. 2016, so as to reduce spending and restrain further inflationary pressure in the economy. Worse still, the N6tn projected borrowing by CBN would price loans out of reach of the real sector, but the banks, particularly, will be made richer by over N600bn by December 2016.
The above title was first published in the Punch and Vanguard Newspapers on December 29, 2014. A summary of that article follows hereafter:
The contradictions that have precipitated our failed economy are probably best captured by the stark reality of deepening poverty and high unemployment rate, despite the celebrated recent upward revaluation of our Gross Domestic Product, and increasing government revenue, with bountiful external reserves to boot, for over a decade!However, a closer examination of Nigeria’s prevailing fiscal and monetary strategies suggests that we are in denial of the deeply rooted cause of deepening poverty in the midst of plenty.
Furthermore, it is inexplicable that a country with such acute infrastructural deprivation will persistently appropriate less than 20% of annual budgets for upgrading Social infrastructure, while the allocation for education also, constantly remains less than one third of UNESCO’s best practice recommendation of 26% of annual budget.
Nonetheless, it is the area of monetary policy strategies that the contradictory impact of government’s decisions become more glaring; regrettably, however, these same odious CBN strategies which antagonise industrial growth and social welfare, have in the manner of steady propaganda, become wrongly accepted as best practice options in public consciousness.
Media reports generally extol the monthly process with which Central Bank borrows hundreds of billions of Naira, by selling Treasury bills to banks, in order to mop up perceived systemic excess Naira supply and restrain inflation, as a progressive strategy “that assists commercial banks to manage their surplus cash holdings efficiently.”
Sadly, such positive media undertone induces public perception of CBN as a proactive government Agency, that relentlessly empowers banks to serve as strategic mediators between investible funds and the real sector, in order to successfully drive inclusive economic growth. However, with the present evident failure of our economy to create jobs, the Media may have become inadvertent collaborators in mischievously misrepresent-ing the economic and social utility of CBN’s present monetary strategies.
Conversely, if the Public and the media should carefully monitor CBN’s ceaseless high cost borrowings with Treasury bill auctions, the Apex bank’s attempts to reduce Naira liquidity and hold back inflation, by restraining bank lending and consumer spending, would be seen as bizarre strategies which require urgent interrogation.
For example, it is inexplicable that despite the undenied unusual burden of eternally surplus Naira in the system,cost of funds should remain oppressively high to become a deterrent to real sector growth and job creation; notably however, there is certainly no commodity that rises in price when its supply is well in excess; so, why does CBN, wilfully, borrow allegedly surplus funds, and pay extremely high rates of interest (between 9-16%) for what are clearly risk free sovereign loans, and how much does it cost to service such oppressive loans annually? Besides, what is the origin of this apparently unstoppable unceasing flood of surplus Naira?
The CBN’s usually terse defence, is that its monetary strategy is designed to restrain inflation from spiralling out of control because of systemic surplus Naira, chasing limited output/services, is generally accepted as sufficient explanation for the clearly oppressive social and economic consequences of the Apex bank’s measures for restraining excessive consumer demand and spending in the economy.
It is also worrisome that the public wrongly assumes that the hundreds of billions of Naira borrowed annually, with such high costs, are actually applied to improve social infrastructure. This is clearly far from the truth; we must remember that if the funds were initially mopped up because they were adjudged to be excess and antagonistic to the promotion of stable market prices, it would therefore be counterproductive to recycle the same funds, as supportive intervention funds into the system, by allocating it for any purpose whatsoever! Curiously, therefore, despite the heavy collateral of increasing national debt propelled by the attendant shylock service charges of such borrowings, the Apex bank actually also consciously and deliberately crowds out the real sector from cheap loanable funds that would spur more investment and employment opportunities!
Expectedly, the attendant bountiful profit from double digit interest rate income for doing nothing, is sufficient attraction for commercial banks to shun lending to the real sector, particularly the SMES. Clearly, therefore, CBN’s Treasury bills borrowings remain the actual enemy of industrial growth as well as a major threat to job creation, thus probably making CBN’s T/Bills strategy, Nigeria’s number one enemy of inclusive economic progress!
If the impact of CBN’s failed monetary strategy is understood from the preceding narrative, the media will certainly be more circumspect in their evaluation and unfortunate overt endorsement of the impact of the current strategy of mopping up perceived excess liquidity. Regrettably, however, despite desperate complementary monetary controls, such as the present 75% Cash Reserves Requirement for public sector deposits and 20% for the private sector, and with CBN’s Monetary Policy Rate also at the industrially disenabling rate of 13%, excess liquidity still incredibly remains uncaged. Sadly, CBN’s body language and the monetary measures recently rolled out to checkmate inflation, suggest that it will be more of the same menu that has deepened poverty in the midst of plenty!
The question then, is why do the authorities persist in this macabre emasculation of our economy? It is difficult to suggest that our economic management team is ignorant of the cause of the clear failure of its policies to instigate the kind of economic growth that creates increasing jobs! Surely, the evidence of the failure of this strategy is also clearly mirrored in our stubbornly famished industrial landscape, in which consumer demand is stringently capped by an average inflation rate of about 8% in recent years.
Who will save Nigerians from the unceasing liberal looting of the treasury with auctions of government treasury bills? Instructively, however, the allocation of dollar denominated revenue with dollar certificates will eliminate or minimise the destabilising economic and social burden of eternally mopping up surplus Naira, and also support inclusive economic growth in place of deepening poverty.