The recent announcement by the Federation Accounts Allocation Committee, of over N760bn disbursement to cash famished states, was popularly regarded as a bailout package, despite clarifications from the President’s Media Adviser that the income was actually the constitutional entitlement of the three tiers of government.
The payment package apparently included the sum of $2.1bn earlier paid into the Federation Account as tax receipts from the Bonny LNG and Shell Producing Company; nevertheless, beneficiaries received Naira equivalent of over N400bn (at an exchange rate of N197=$1). Additionally, government also shared N360bn, which was reportedly collected as Internally Generated Income by the Federal Inland Revenue Service.
In addition, a loan package of between N250-300bn would also be put in place by the CBN for distressed states to access, after fulfilling the requirements to guarantee appropriate fund application and repayment.
Furthermore, the CBN was also directed to intercede with commercial banks and the Debt Management office to restructure the tenure of over N600bn outstanding short term loans of the state governments.
Regrettably, the consolidated package may be grossly inadequate to address the depth of distress in most states; nonetheless, the package was welcomed by thousands of workers who had barely managed to survive without salary for several months. Conversely, some Nigerians, have expressed concern that the allocations had become the reward for unrepentant profligacy in the management of public resources; such critics further argue that since the funds were clearly inadequate, states would inevitably still require more cash to clear their huge backlog of salaries and contractor’s debts for several months to come. Worse still, in addition to a consolidated External debt stock of over $10bn, both federal and states governments would also need to service their existing domestic debt stock of over N10Tn and N2Tn respectively.
Thus, with the current paucity of internally generated revenue, both federal and state governments may ultimately depend on refinancing and further increase of their already oppressive debt stock just to fund recurrent expenses; in this event, unless, the political class becomes born again and seriously commits to a massive reduction in the cost of governance, any expectation of a boost in social and economic welfare will remain a very dismal prospect.
However, in consonance with the abiding culture of self service, any attempt at promoting frugality, probity or accountability in public service may be stoutly resisted by the current class of political investors, who will, as usual, rely on a weak regulatory system and the support of ethnic and religious adherents to escape sanction for the pillage of our common wealth.
Nevertheless, let us take a closer look at the potential impact of the N760bn which was recently shared to the tiers of government. In reality, the constant pressure of the unusual burden of systemic surplus Naira, has consistently made it impossible for inflation to recede to best practice levels below 3%; furthermore, the prevailing high cost of funds above 20% is also the result of CBN’s failure to manage the scourge of excess cash, while the Naira exchange rate is unceasingly pummeled by the constant juxtaposition of huge Naira surpluses against dollar rations in the market. Consequently, persistent overwhelming Naira liquidity has made it clearly impossible for CBN to achieve its core objective of price stability, such that inclusive economic growth has remained elusive for decades.
However, in response to the above dilemma, common sense would advise, that if a glass is already full, it becomes wasteful to continue to pour more water into that glass, especially when it is very expensive to simultaneously mop up the excess spill. Similarly, since an unending flood of surplus Naira already distorts the critical indices of monetary strategy, it will also be counterproductive to continue to swell the extent of surplus cash in the system, especially when government turns round to reduce the naira excess by mopping up the “overflow” with Treasury bill auctions which bear high interest rates (12-15%), which are clearly inappropriate for Sovereign risk free loans, which normally attract below 3% interest rate in better managed economies everywhere. Indeed, with the bonanza returns on such ‘easy’ government loans, commercial banks will clearly care less about job creation or the survival of the real sector.
Thus, In the light of the persistent challenge of excess liquidity in the system, additional bloated Naira denominated monthly allocations to the three tiers of government become counterproductive as a strategy to grow the economy, and improve social infrastructure and the welfare of our people. Thus, the latest infusion of over N760bn into an already Naira suffocated market, will inadvertently also instigate greater stress in the economy.
Observers will recall that the CBN Governor was clearly ecstatic when he gleefully announced in a recent TV broadcast that its erstwhile depleting forex reserve base of about $29b had suddenly spiked above $31b on receipt of the sum of $2.1bn from Bonny LNG and Shell.
Inexplicably, however, despite the resultant swell in dollar reserves, somehow, the Naira equivalent of over N400bn also became simultaneously available for sharing as allocations to the tiers of government! Thus, in a magical twist of fortune, Nigerians could have their ‘dollar’ cake domiciled with the CBN and at the same time still voraciously gulp up the same cake as Naira allocations which further compound the existing problem of Naira surplus.
Alarmingly, this “magic” has been practiced with disastrous consequences in our economy for several decades. Consequently, the more dollars we have earned from crude export, the greater was CBN’s reserves and the higher also became the Naira values substituted as allocations, to make it extremely challenging for CBN to successfully manage inflation, and reduce the cost of funds or to indeed reduce the pressure on the Naira exchange rate against the dollar.
Instructively, therefore, with the uncontrollable consistent Naira surplus, the impact of all the extra budgetary ‘well intentioned’ cash interventions by the CBN would clearly also increase the challenge of creating an enabling environment that will preserve income values and stimulate consumer demand to propel industrial growth, economic diversification and also create increasing job opportunities.
Instructively, Mr. President had a great opportunity to begin to reverse the ugly trend in monetary mismanagement with the recent $2.1bn LNG revenue; thus, if this income was shared as dollar allocations (with dollar certificates) instead of the substitution of over N400bn, the pressure of excess Naira would be checked with salutary impact on inflation, interest rate, and the Naira exchange rate. Sadly, Mr. President’s failure to adopt this strategic CHANGE can only mean more of the same Economic menu with the attendant suffering and gnashing of teeth.
SAVE THE NAIRA, SAVE NIGERIANS
VANGUARD
END
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