Muhammadu Buhari’s ouster from power in 1985 clearly attracted jubilation in several quarters, particularly from those who decried his iron-fisted enforcement of social discipline. But three decades later, he was, inexplicably, swept back to power, in an infectious carnival-mode campaign, as the arrow head of the change Nigeria urgently required to rechart its trajectory and restore hope for a better life for its citizens.
Expectedly, President Buhari is constitutionally empowered to manage our economy for the greater good of more Nigerians by adopting best practice fiscal and monetary strategies to achieve this purpose.
Over the years, there appears to be a discomforting inverse correlation between deepening poverty, curiously, existing simultaneously with national reserves which were consistently in excess of $30bn in an economy, which also remains eternally awash with embarrassingly surplus spending values.
So, how can Buhari re-invent fiscal and monetary strategies that would positively turn around our failing economy and redeem our citizens from poverty? Recently, Vice-President Yemi Osinbajo suggested, at a retreat for ministers-designate, that the allocation for capital expenditure would be increased to about N2tn in the proposed N8tn 2016 budget. Clearly, even if the projected $10bn capital vote is judiciously applied, the impact will still be insignificant, when compared with the speculated immediate infrastructural deficit of well over $100bn!
Furthermore, Osinbajo also suggested that with depleting oil revenue, the over 70 per cent projected increase in the 2016 budget, might be funded with additional borrowing, even though, this would increase debt service charges to almost N1tn ($5bn) or 12.5 per cent of the 2016 budget (but over 20 per cent of 2015 budget). It is worrisome nevertheless, that Nigeria’s total debt is currently in excess of $60bn, i.e. well above the earlier widely condemned $30bn that elicited so much public consternation when $18bn was controversially fleeced from our pockets for total debt cancellation in 2006 under President Olusegun Obasanjo, by overseas creditors.
The above experience advises that we should be wary of external loans denominated in foreign exchange, especially, when the Nigerian money market also persistently remains unceasingly awash with hundreds of billions of ironically idle funds, that could be marshalled for investment in critical sectors, to drive inclusive growth.
It is also becoming increasingly clear that the present administration’s selective sectoral support may not be too different from the failed process of offloading hundreds of billions of intervention funds annually, into a money market that is already perennially suffocated by a burden of surplus cash! It is instructive, for example, that despite several special provisions to the textiles, aviation and agricultural subsectors by previous administrations, remarkable success has so far remained elusive.
In the event of these serial failures of fiscal management, Buhari may have to rely significantly on the efficacy of monetary strategies to successfully turn around the economy. Curiously, however, the responsibility for designing and implementing sensible and appropriate monetary policies, constitutionally resides with the Central Bank of Nigeria and its Monetary Policy Committee rather than the President. Thus, if the CBN and the MPC successfully manage money supply effectively, inflation rate will fall to best practice levels below two per cent; with such outcome, purchasing power of all income values will become preserved to sustain healthy consumer demand which will in turn stimulate further investment and rapidly increase job opportunities. Conversely, however, consistently faulty management of money supply, will over time, trigger unrestrained inflation which will invariably distort government’s annual budget projections, and also make the realisation of both corporate and personal plans a major challenge. An inflationary spiral will evidently deepen poverty nationwide.
Furthermore, best practice management of money supply will similarly facilitate single digit interest rates that will be less oppressive and less restraining to investments in ALL sectors of the economy. Indeed, critical sectors, such as agriculture, food processing, education and mass transit ventures could attract less than two per cent interest rates, as applicable, for example, in Japan, to encourage active private sector participation.
Incidentally, the MPC decided at its 104th meeting last week to reduce its benchmark interest rate (which sets the pace for domestic bank lending rates) from 13 to 11 per cent. Instructively, since the erstwhile 13 per cent policy rate induced commercial lending rates between 23 and 27 per cent, invariably, the new 11 per cent benchmark may only marginally bring down market rates to about 20 per cent, instead of the more appropriate and supportive middle single digit rates required to truly encourage new investments, with unforced economic diversification and rapid job creation as planned.
Last week, in an attempt to inject more liquidity into the banking system to facilitate access to credit, the MPC also reduced the cash reserve commercial banks must hold to 20 per cent from 25 per cent. Evidently, even if this decision appears progressive, it is clearly misguided and counterproductive and will certainly fuel inflation in a money market which is perennially burdened by excess liquidity, which must be constantly mopped up by the CBN with additional borrowing. Ironically, the proceeds of such loans are simply farcically sterilised as idle funds, despite the attendant high interest rates which are clearly out of tune for such sovereign, risk free borrowings.
Additionally, appropriate management of the naira supply vis-a-vis other foreign currencies, will also inevitably guarantee a stronger and stable naira value, which will boost the attraction of the local currency as a store of value, rather than sustain its current fate as a rejected street urchin. Instructively, our recent history of unrestrained presence of surplus naira has continued to pummel the naira exchange rate, paradoxically, even when the CBN’s reserves steadily climbed fortuitously as high as $60bn!
In this event, Buhari must feel helpless, like earlier Presidents before him, that the enshrined autonomy of the CBN and its Monetary Policy Committee for ensuring price stability, clearly restricts him from breaching the apex bank’s territory on monetary policy management.
Indeed, in recognition of the enormous powers and pervasive influence of the control of money supply in every economy, one of the illustrious pioneers of the template of modern banking, a certain Mayer Rothschild, insightfully observed as follows in 1790:
“Give me control of a nation’s money supply, and I care not who makes its laws.”
Thus, in spite of Buhari’s undenied passion for positive economic and social change, not even his best efforts and commitments nor the additional capacity of an eminent cabinet will unseal the failure of this administration, if the CBN and the MPC continue to fumble with the management of money supply.
It makes no sense to increase an undenied existing burden of liquidity surplus by reducing the mandatory cash reserve requirement of commercial banks on one hand, only for the same CBN to also proceed less than two weeks thereafter to borrow back the resulting increasingly surplus cash holdings to avert the threat of inflation with a proposed N129bn Treasury bill auction on December 2, 2015.
Advisedly, if President Buhari hopes to achieve his vision of positively turning round our economy, he should interrogate why surplus cash has remained the major challenge obstructing the CBN’s achievement of its prime mandate for economic price stability that should successfully drive inclusive growth. If Mr. President is insistent for a sensible answer and enthusiastically prods deeper, he will discover that the solution to our economic dilemma is accessible and certainly easier to implement than often claimed.
PUNCH
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