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Money money money everywhere but none to borrow!

It would seem a cynical denial of reality, for anyone, to suggest that, the prevailing, oppressively high cost of borrowing, is caused by an unexpected burden of the presence of too much money.

Ikoyi cash seized by EFCC

How, one may ask, will the price of any commodity rise when supply of that item is constantly in burdensome surplus! Clearly, such an unusual market model would certainly defy the law of gravity and the equally ubiquitous law of demand and supply.

There are several media reports of Nigerians, who took their own lives when intense pressure to make ends meet, drove them to borrow from shylock loan hawks who demand upto 50% monthly return on loans and advances!

Thankfully, the institutional banks, for deprived and marginalized Nigerians, do not charge such strangulating cost for loans; nonetheless, the average 6-10percent/monthly interest rates, charged by Microfinance Banks, still seem rather inequitable and clearly distortional, especially when significantly bigger business conglomerates, fervently decry the comparatively more modest 20%+ interest, charged by commercial banks. Regrettably, this obvious oppressive structural deformity is largely celebrated as inclusive economic support to the poor!

Invariably the beneficiaries of such ‘poisonous’ structural support may remain terminally, in financial bondage, even while, Nigeria’s Treasury is endlessly, inexplicably confronted with the embarrassing challenge of managing perennially, perceived surplus money supply in our financial system.

On Wednesday 20th September 2017, for example, the Central Bank of Nigeria borrowed N215.9bn of such surplus funds, despite the 13-17% high interest rates, offered in a money market, in which commercial banks are major beneficiaries.

Regrettably proceeds of CBN’s hundreds of billions of Naira, bi-weekly borrowing sprees, are often, widely, misrepresented on most media platforms, as approved loans already legislated for funding governments’ budget deficits.

This unfortunate media misrepresentation, has, arguably, distracted public attention from the actual counter-productive and reckless demolition, that Nigeria’s economy has endured for decades, because of CBN’s poor management of its sole mandate to control money supply.

The truth, is that Nigeria’s Debt Management Office, is constitutionally mandated to independently borrow, to fund the N2.63Tn deficit in 2017 budget; such loans are irrespective, of CBN’s borrowings to reduce any worrisome surplus money in the market. Consequently, the logical question is, what does CBN, then, do with the Trillions of Naira, it borrows, with such distortionally high interest rates, that invariably also instigate, commercial banks, to in turn, hike their own lending rates to customers?

Evidently, commercial banks income was bolstered, for example, by about N600bn interest payments, when CBN borrowed, to remove burdensome surplus money supply from the market in 2016; but the question then becomes, what does CBN do with the Trillions of Naira borrowed and what economic activity, generates the huge related interest payments? Evidently, the oppressive interest payments notwithstanding, the CBN, indeed, does absolutely nothing with its, borrowed bloated, Cache of Naira supply; infact, the Apex bank, simply sterilizes the trillions of Naira loan proceeds, from any commercial or investment application in the economy; ultimately, however, fresh Naira supply will be minted to pay the heavy interest charges on the sterilized funds, not minding the collateral of inadvertently increasing money supply in the system and fuelling inflation.

“Why would the CBN adopt such financially reckless and counterproductive measures? The CBN’s counter to this question is that, its seemingly negative measures are, infact, necessary to ensure that the prices of goods and services do not continue to rise, to make life, increasingly unbearable for Nigerians.

Invariably, if inflation is left unchecked, all incomes will lose much value and one may need a basket full of naira to buy one loaf of bread! But one may also ask, what has inflation got to do with paying upto 17% to borrow money that you will not apply to building schools, hospitals, roads etc?

Well, you may have observed that increased consumer spending spree during festive and yearend holidays, invariably, also instigate higher prices to purchase, the conversely, relatively stable supply of goods and services. Basically, higher prices, during these festive seasons, are the product of much more money chasing the fewer goods available. Ultimately, inflation, will inevitably spiral, if CBN fails to restrain irrepressible consumer spending by mopping up (read as borrowing) any perceived surplus money supply from the market.

Obviously, with the very lucrative returns of 17%+ on, such risk free, government borrowings, it is no wonder that private sector investors will have a hard time to obtain credit at industrially friendly rates below 7% to make their businesses more cost competitive.

Meanwhile, official reports, presently show that between January – July 2017, CBN has already borrowed about N3.1Trillion through its auctions of Treasury bills. It is not unlikely that the total debt incurred and the related humongous interest payments, will exceed the N6Trillion+ also borrowed and over N600bn interest paid primarily to banks in the 2016 fiscal year to reduce the threat of inflation. Ironically, evidently, syndicated media reports continue to promote the idea that these debts were incurred to “fund the budget deficit” and “support commercial banks in managing liquidity” (see CBN to borrow N917bn via T/bills in Q4” (Punch edition 14th September 2017 page 25).

However, CBN’s intention to additionally auction a relatively modest sum of N140bn on Wednesday 20th September 2017, was unexpectedly oversubscribed 3 times over with N559bn, and ultimately CBN borrowed N215.9bn. Expectedly banks will remain in celebratory mood, for as long as such free Awoof money flows, even when industries still cry out for a supportive level playing ground, characterized by interest rates which do not exceed, for example, 5% to industrialists and 1% for any agricultural enterprise.

Sadly, the sustenance of lending rates between 20-30% for private sector, productive enterprise remains a daunting challenge, that will invariably impede progress towards a diversified and socially inclusive economy. This reality is abundantly clear, particularly, when CBN keeps repeating the same strategies that have failed to provide the required solutions, in our economy for decades.

Regrettably, it seems our collective national intellect and awareness has remained under a spell of distraction, from the source of the poison, in our fumbling strategy for inclusive economic growth; alternatively, it could also be the more mundane blind faith of the Nigerian elite, that the managers of our fragile economy are on course, despite the continuous application of the same strategies that have sustained irrepressible inflation and interest rates beyond single digits, with unstoppable growth in unemployment and a battered Naira exchange rate structure that hardly respond positively in favour of the Naira, even when fortuitously bountiful CBN reserves could cover over 20 months of imports, when crude oil sold above $140/barrel.
So who said there’s no money to borrow?



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