The Nigerian Central Bank may be leading the nation on a dancing trip to Harare. But this dance doesn’t have the fascinatingly entertaining theatrics of Azonto, Shoki, Etighi, Galala, Suo, Konto, or even our dance dejour, Zanku. In terms of what it could do to our economy, it has every element of Danse Macabre.
It’s a testament to Nigerians’ obsession with the dramatic (or “violence”, as tweeps would put it) that the question of Nigeria’s fiscal position occasioned by the Central Bank of Nigeria’s reckless funding of government’s deficit and sundry activities is coming to the fore in April 2021. Nevertheless, it is still a good development that public attention has now shifted toward a sensitive issue, even if belatedly.
Godwin Obaseki, the governor of Edo state, stirred the hornet’s nest last week when he alleged that FG is printing money to fund federal allocations.
In her reaction, Nigeria’s Finance Minister, Mrs Zainab Ahmed, claimed that Obaseki lied. “It is not true to say we printed money to distribute at FAAC,” she said.
The governor replied in another intervention, insisting that his claims were correct. Rather than play the Ostrich, he urged the government to put an end to what he called “monetary rascality”, to prevent the nation’s economic challenge from degenerating.
First off, the point must be made that even if his intervention as an opposition politician may not be completely altruistic, Obaseki isn’t your regular financial illiterate attempting to muddle up the numbers; he is an investment banker and founder of Afrinvest, a leading investment banking firm. And so, Minister Ahmed’s response isn’t necessarily absolute. In any case, a few people have learnt not to take the finance minister’s interventions too seriously in the last few months because they often end up being discarded or overruled by the CBN. A perfect example occurred weeks ago during the kerfuffle over Nigeria’s foreign exchange policy.
And so it was no surprise that after the minister dismissed Obaseki’s claim, the CBN came with a response that was not necessarily a response. “The concept of printing of money is about lending money and that is our job,” the apex bank said. “It will be irresponsible for the CBN or any Central Bank or Fed to stand idle and refuse to support its government at a time like this.” Then came the veiled threat that state governments must begin to pay back the Budget Support Loans given to them by the Federal Government, ostensibly as a “punishment” for challenging the CBN’s. Interesting.
Since the controversy began, there have been attempts to either muddle up the conversation or make a joke of an important concern. While leaving out contextual issues like the (reserve) status of a nation’s currency, targets of such monetary/fiscal interventions, and size of economy, some have said that central banks in other big economies too are printing money and supporting government. But those who make reference to these big economies would do well by explaining that such support isn’t done to fuel outright consumption or/and deficit financing that typically goes into salary payment like ours. They do often to buy back securities from financial institutions as a way of kick-starting their economies.
Of course, the deflection moved to the ridiculous when others imagined the idea of “money printing” not in the fashion that money is created through reserve (Fractional Reserve Banking), but in the literal sense: they said Mr Obaseki’s claim is untrue because such huge amount of cash can never be “printed” and offloaded to state capitals in bullion vans because of logistic concerns. Hilarious.
Given how much the government muddles up the waters, I do think that we may not have a proper closure on the specificity of Mr Obaseki’s N600bn FAAC allocation claim. For one, the CBN’s audited report hasn’t been published for some time now. Again, especially for others who take Mr Obaseki’s “money printing” claim literally, even though the jump in the volume of base money (N13trn from less than N6trn) in the last few years appears tempting, it is quite unlikely that that’s the crux of the matter.
But more importantly, I think the CBN-Obaseki controversy may serve as the catalyst for a bigger conversation: the fiscal risks associated with CBN’s financing of government via its Ways and Means.
To be sure, there is nothing intrinsically wrong with the central bank “supporting” the economy—–or even “printing money”––but there are many things wrong with our own CBN’s kind of “support”. And long before Mr Obaseki hugged the headlines, Doyin Salami had raised these concerns.
In 2017, as an external member of the CBN monetary planning committee, Salami took the CBN to the cleaners in his assessment of its monetary policy which, he argued, was pushing the country towards a serious economic crisis. He warned at the time that the conduct of the government and the CBN was limiting the organised private sector’s access to credit. He specifically flayed the CBN’s “massive injections of cash” into the government’s purse and accused the bank of serving as a “piggy bank” for the government, against its own rules. His concerns were dismissed by the CBN, expectedly so.
Yet, around that time, the CBN’s financing of the government hadn’t even gotten to this height. Between then and now, the figure has risen to N10trn ($25.6 billion), and it remains largely undocumented as an obligation in government’s books, with the government saying just recently that it will be securitized––i.e it will be converted to long-term, 30-year notes.
More worrisome is the fact that the facility has continually been obtained in gross contravention of the CBN Act 2007 which, in Section 38 (2), stipulated that “the amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government”. For instance in 2020, where the CBN act prescribes 5%, the government accessed N2.8 trillion via the Ways and Means, representing 62.2% of 2019 revenues of N4.5 trillion. Unsustainable.
In January, Fitch Ratings said Nigeria’s repeated recourse to its Ways and Means facility (WMF) with the central bank raises risks to macroeconomic stability. In light of the nation’s weak institutional safeguards, it said sustained use of direct monetary financing highlights weaknesses in public finance management. Similarly, IMF told the apex bank to stop financing the government’s budget deficit, and called for a phased elimination of measures to contain the nation’s inflation rate.
When you “print money” for consumption or/and overheads, it doesn’t necessarily affect economic output or production levels but lowers the value of the local unit and triggers inflation. In a sense, therefore, the ripple effect of these concerns isn’t only evident in the increase in base money and the absence of corresponding growth in economic output, but also inflationary concerns, unemployment, foreign reserves management challenge, and other indices of measuring the state of the economy.
At the height of its economic crisis, which saw wheelbarrows replace wallets, Robert Mugabe’s Zimbabwe adopted a number of policies, including creation of dollar surrogates in the electronic banking system in grand scale, without the backing of sufficient currency reserves or gold, which is the prerequisite of any stable unit. The result was hyper-inflation, and attendant socio-political unrest.
A few analysts would argue that equating Nigeria’s condition to Zimbabwe’s may appear like a stretch. Yet, if you juxtapose what we know already against things we don’t know due to the secrecy in the management of fiscal and monetary concerns, it is doubtful if the nation isn’t secretly dancing its ways to Harare already.
The sad part is that this isn’t any such dance that can breathe life into our economy and allow us “gbese!” and “gbe body!”––it has every element of the macabre dance, or Dance of Death, wherein skeletons escort living humans to their graves in a lively waltz. We must halt these (dance) steps immediately.
Oladeinde writes on the Economy, Investment, Business, and Public Policy. He tweets via @Ola_deinde and can be reached on Olawoyinoladeinde@gmail.com
Support PREMIUM TIMES' journalism of integrity and credibility
Good journalism costs a lot of money. Yet only good journalism can ensure the possibility of a good society, an accountable democracy, and a transparent government.
For continued free access to the best investigative journalism in the country we ask you to consider making a modest support to this noble endeavour.
By contributing to PREMIUM TIMES, you are helping to sustain a journalism of relevance and ensuring it remains free and available to all.
TEXT AD: To advertise here . Call Willie +2347088095401...