BEVERLY HILLS, May 30, (THEWILL) – The issue of printing of currency notes by the Central Bank of Nigeria (CBN), once raised by Governor Godwin Obaseki of Edo State, very much dominated popular discussion for many days. Listening to the arguments as they raged, it was observed that one critical point was missing.
Everyone who commented came with their perspectives of how wrong it is to print notes. It was as if there is anyone oblivious of the deleterious consequences of such a development for microeconomic stability. Some went ahead to articulate what in their opinion is wrong with the Nigerian economy; a fact which is well known by most barely informed commentators. But in my view what has been missing in this discussion is a careful consideration of the counterfactual.
We make it sound as if the authorities simply want to increase money supply within the system. We are here talking of an economy whose rate of inflation is as at last count estimated at 18.12 percent; almost the highest rate since January 2017 when the rate reached an unsupportable high rate of 18.72 percent, about four years ago! Therefore, this most certainly is an unusual time in Nigeria.
An Extreme Scenario
Let us, for the sake of this discussion, accept that a loan was extended by the Central Bank because, as the Governor of the Central Bank painstakingly explained, the Central Bank simply credits your account to extend a loan to you. Some of the arguments made it sound as if there was any actual printing of currency.
Of course, the Central Bank has responsibility for the quality of the currency notes in circulation. Therefore, in keeping with its clean notes policy, the apex bank withdraws now and again worn-out notes in circulation and prints new notes to replace them. This occurs once there is an understanding of the volume of currency notes in circulation for the optimal functioning of the economy. That is the only time the Central Bank would resort to physical printing of notes.
So, the Minister of Finance, Budget and National Planning, Zainab Ahmed, had cause to issue a rebuttal against Obaseki’s claim that 60 billion currency notes were printed to augment the available money for FAAC allocation. But, suppose there was such a gaping shortfall and the CBN governor went back with inadequate allocation, did he spare a thought to consider what could have happened? He will not be able to pay salaries and wages and workers accustomed to receiving their cheques at the end of the month will not be paid!
What then will happen? We harvest unrest as probably wild cat strikes would be the order of the day. This fragile peace we are now enjoying would be denied, workers will go on strike and the country will be ungovernable. We must accept the fact that the Federal Government is under no obligation to share money that it does not have. This is why this feeding bottle federation, which we operate, is due for urgent review.
This is one more reason why there has been agitations regarding the need to revisit the current revenue allocation procedure. Autonomy should be enthroned, such that component sections of the federation could tap on the resources in their backyard and pay tax to the centre for the provision of common services. The Nigerian economy is in dire straits and a generality of the people are discussing niceties. There is fire on the rooftop and one is busy chasing rats in the house!
Which of those prescriptions being bandied around are amenable to quick fix? We are faced with a situation whereby because we failed to do what was required to have been done at the appropriate time, the chicken has now come home to roost. Therefore, whatever is wrong with what has happened so far, we must have it in mind that the steps were taken or rather being taken because there are no options. Stoking inflationary pressure poses a lesser danger than not being able to pay salary to large numbers of the workforce.
The extent of the outcry makes it sound as if the Central Bank has committed an unpardonable crime. Even the alarm being raised would be seen in better light if we recall what happened the year of the pandemic; 2020. The 2020 Budget had a deficit of N6.1 trillion. How was the deficit funded? N2 trillion was borrowed from domestic sources, N1.1 trillion was sourced from external sources and the outstanding of about N3 trillion was borrowed from the Central Bank otherwise the economy could have ground to a screeching halt.
We are here trying to pull down the roof because of an allegation that N60 billion was loaned from the Central Bank to augment the FAAC money. And the intention to repay such borrowings is always there as interests due on such borrowings are routinely calculated and added to the outstanding debt account. While we discuss this, it is good that the governor of the Central Bank reminded all that budget support of N1.5 trillion, which was extended to the states in 2015/2016 was still outstanding and the apex bank will now commence the recovery of such loans!
In recognition of the centrality of funding from loan against the background of dwindling revenues, the Federal Executive Council in approving the Medium Term; 2020 to 2023 Debt Strategy decided to increase the country’s Debt-to- GDP ratio to 40 per cent relative to the extant ratio of 25 per cent to give more scope for borrowing.
It is argued here that both the World Bank and the International Monetary Fund had recommended a ratio of 55 percent for countries in Nigeria peer group. Of course, we are all aware that Nigeria’s problem with fiscal sustainability arises from the consideration of debt service burden. If Nigeria today is to keep fidelity to its debt repayment obligations; the country would not have money even to meet recurrent expenditure.
A Glance At Quantitative Easing
What is happening with respect to quantitative easing is not restricted to Nigeria as a result of the pandemic which brought economic activities to a halt across the globe. It might be cold comfort to take a cursory look at the American experience, even as one is quick to observe that what has made the Nigerian case a particularly difficult nut to crack is the fact of lack of productive base in the economy.
In response to the economic shutdown due to the COVID 19 pandemic, the Federal Reserve Bank of America on March 15, 2020 announced a quantitative easing plan of over $700 billion. Then on June 10, 2020, the FR Board extended the program committing to at least $80 billion a month in Treasury and $40 billion on asset backed mortgages.
Joe Biden on assumption of office pushed through a palliative package totaling $1.9 trillion COVID stimulus package to be disbursed; $415 billion to boost vaccine production and generally required response to stem the pandemic and a palliative cheque of $1,400 paid to every American citizen. There is no country in the world, as should be expected to varying degrees, that is exempt from the American experience hereby recounted as fallout of the pandemic experience.
The fact remains that what ails the Nigerian economy have been severally articulated over the decades; from Vision 2010, to Vision 2020, to Nigerian Economic Empowerment & Development Strategy to 2014 National Conference Report to Oronsaye 2011 Report. These reports contain well considered carefully articulated strategies for the development of the Nigerian economy.
Even the Structural Adjustment Program of 1986 aimed at the diversification of the Nigerian economy, the enthronement of market forces for the allocation of scarce resources, the pursuit of a private sector led economy and many others, are part of it. Unfortunately, they have all suffered from the same fate; lack of any implementation.
But Nigerians expect the naira rate of exchange not to depreciate when there is hardly any productivity in the economy! How do we want to make an omelet without breaking eggs? Nigerians must wake up to smell the coffee. It is going to be much worse before it gets better. The only comforting light on the horizon is the Dangote Refinery which is scheduled to commence operations in the first quarter of next year. It promises to be a game changer, otherwise we would all as a nation rue the fact of wasted opportunities to do what was right by the economy. There is resort to ways and means of funding simply because there are limited options otherwise, we end up with a space impossible to manage.
•Dr. Chizea, an Economist, is CEO, BIC Consultancy Services, Lagos.
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