Still On CBN’s Handling Of The Nigerian Economy

The Finance Minister, Dr. Ngozi Okonjo-Iweala, declared at a recent meeting of Governors of Central Banks of the West African Monetary Zone in Abuja recently that our reserves had risen to about $44.6bn.

Any confidence, which this relatively healthy reserve base should inspire, may have inadvertently been dampened a few days earlier, by Central Bank of Nigeria’s claim, at the Save Nigeria Group’s anniversary of the fuel subsidy protests. The CBN’s Director of Research, Charles Mordi, had warned at that forum that although our foreign reserves are about $43bn, only $13bn (i.e., the ECA and Sovereign Wealth Fund) actually belongs to Nigerians, while inexplicably, the balance of $30bn belongs to the CBN!

Mordi explained that since the CBN had paid constitutional beneficiaries naira values in place of the distributable dollar revenue, the apex bank had become the owners of the dollar balance.  In other words, since Nigerians had consumed the naira equivalent of $30bn, it would be akin to having your cake and eating it, if Nigerians insisted on laying claim also to the substituted dollars.  The question that obviously begs for answer in such a bizarre circumstance is whether or not a slave can be richer than its master.

Thus, the bigger the distributable dollar revenue, the bigger will be the burden of cash surplus induced by substitution of huge naira allocations, and the greater therefore will be the challenges of inflation, cost of funds, rising national debt and a weaker naira.  But guess what, the bigger the size of such unsolicited naira substitutions, the bigger also will be the CBN’s dollar profits from its currency transactions.

The CBN cache of dollars may have funded serial looting of the treasury in the last 30 years, as both military and civilian presidents had access to a dollar pool that belonged to no one but the CBN, which has absolute discretion over disbursement.  Indeed, the $450m unilaterally diverted by an ex-CBN Governor to start a bank probably came from this fund.  The billions of dollars committed to the power contracts and the Paris Club debt payments prior to legislative approval may have also found this unencumbered dollar pool quite handy.  The CBN also claims to deploy its “autonomous’’ dollar reserves to support the naira and also serve as collateral to reduce cost of foreign loans to our government.  Paradoxically, the naira remains weak in spite of increasing dollar income, while the cost of our foreign loans still exceeds the cost of such loans to distressed economies elsewhere.

Ironically too, while the Federal Government goes cap-in-hand seeking both domestic and international loans at outrageous costs for such risk-free sovereign debts, our own Central Bank liberally allocates billions of same dollars, which exist outside the federation’s consolidated revenue account to Bureaux de Change at face value.  The apex bank is obviously unconcerned that treasury looters and smugglers of those contraband, which destroy our local industries, are in reality, also the major beneficiaries of the CBN’s unfettered dollar supply to the black market.

The CBN insists that it deploys its formidable chest of ‘captured’ dollars to modulate critical aspects of our economic and social welfare; examples of such interventions include the selective cash donations to victims of violence in some parts of Northern Nigeria and the N1bn donation to a certain ‘beloved’ university.  Similarly, a recent advertisement suggests that the apex bank is embarking on interventions in secondary, tertiary and other public institutions, under its 2013 capital projects.  The establishment of six Enterprise Development Centres in each of the geopolitical regions and the N2tn cash injection to currently debt-crippled Asset Management Corporation of Nigeria are all part of the CBN’s fruitless and inappropriate efforts at ameliorating the adverse impact of its failed monetary strategy.

The question is why is the CBN wilfully distracted from the pursuit of its mandate of price stability with these direct interventions in areas where established ministries and agencies, with statutory allocations, should have the appropriate structure for better service delivery; why the avoidable duplication of structures?  Moreover, the equity and yardstick for selecting beneficiaries for such interventions remain as hazy as its shroud on its expenditure and staff remuneration budget.

For over a decade now, we have decried the totally inappropriate framework within which the CBN captures the federation’s dollar revenue and substitutes monthly naira allocations; this arrangement has created serious dislocations and disruptions in our economy.  In a belated recognition of the weakness of this system, a former Governor of the CBN, Prof. Chukwuma Soludo, attempted to favourably reconstruct our monetary model, such that dollar-denominated revenue would be paid with dollar certificates rather than with bloated naira creations.  Surprisingly, for over five years, prior to his recommendation, Soludo was in aggressive denial of our widely publicised advocacy for such an alternative payment system, which had the potential to quickly resolve policy contradictions and stimulate economic growth with improved social welfare and employment opportunities.

The CBN directors at the SNG forum readily admitted that Soludo’s Strategic Agenda for the naira, which was in sync with our recommendations, was the product of sound professional judgment, but unexpectedly, implementation was summarily truncated by the late President Umaru Yar’Adua’s rejection of the proposed naira redenomination and a restructured payment system.

The excuse that President Yar’Adua stopped Soludo’s pet project because it was unconstitutional is quite untenable, because the CBN’s autonomy in such monetary matters was clearly enshrined in the 2007 CBN Act.  What is possibly nearer the truth will be Yar’Adua’s consternation that naira redenomination, as proposed by Soludo, entailed fresh commitment of billions of naira to production and promotion of a new currency profile (including revised coins structure) to replace all the new denominations, which the CBN introduced only eight months earlier with equally great production and publicity cost!  Ultimately, Yar’Adua threw away the baby with the bathwater without a whimper of protest from Soludo, who succumbed to the trappings of office rather than adherence to professional integrity.  Regrettably, Soludo lacked the courage to stand by his professional judgment, and quickly backpedalled to once again reinstate the existing economically poisonous and ultimately destabilising framework of naira substitution, with its inherent liberal opportunities for corrupt practices!

In truth, until we accept the obvious good sense in stopping impulsive creation and substitution of naira allocations for dollar-derived revenue, poverty will deepen even with rapidly increasing dollar revenue, as is currently the case, but the CBN’s autonomous dollar harvest will continue to bloom. What a paradox!

Written  By HENRY BOYO