Let’s bring the naira back to a respectable value

The Central Bank of Nigeria cannot continue to pretend that all is well with the current value of the naira against internationally acceptable currencies. Present value creates a kind of monetary illusion when it comes to allocating statutory revenues between different levels of government. With the range of experts in its research department, one is sure that the CBN knows the factors that have pushed the value to the current precarious level. The factors are caused by acts of commission and omission on the part of the Bank itself since some of the factors can be attributed to its activities over the past few years. Two of the factors are the deliberate devaluation of the Bank to artificially increase Federal allocations and the printing of naira for subsequent loans to the Federal Government to meet a simulated shortfall.

Although there have been truths about the shortfall, the revelations of corruption against the country’s former Federation accountant general and the allegation of the same about the acting AGF as well as those who have not yet been published or detected in the revenue registration department of the ministry. of Finance are indicative of the high level of under-recording of federal revenues. This revenue shortfall problem is fundamental to the massive borrowing – internal and external – of the federal government and, by extension, the inability of governments at all levels to meet statutory obligations such as the timely distribution of federal allocations between the three levels of government, the regular payment of wages for workers and contractors, the payment of pension schemes and the adequate financing of social sectors such as education and health.

The CBN’s reliance on printing money to fill the revenue “gap” is a major driver of inflation that is becoming intractable; the high volume of foreign exchange available and perhaps the high demand pressure for foreign currency the end result of which is a massive depreciation of the naira. The country’s budget system is somewhat bizarre. Just before the execution of the current budget, the federal government sent a supplementary budget to the National Assembly for consideration and approval. The supplementary budget element was rejected because it must be introduced during the execution of an approved budget, not at the beginning. In fact, it made it clear that the Department of Finance had not done a thorough job or exercised due diligence when developing the main estimates.

Anyway, the budget already contained huge deficits because the government refused to realize the concept of declining revenues and the need to cut its coat according to the size of the fabric. The continued pursuit of so-called incremental budgeting without adjustment is the force behind current deficit budgeting and colossal borrowing. It is normal to have a deficit budget and to identify the sources of financing the deficit. The sources are naturally internal borrowing, external borrowing or lending, borrowing from the central bank against securities, and the printing of money by the country’s central bank, which is considered the last resort due to its inherent inflationary elements.

Domestic borrowing is a means of mobilizing funds from surplus areas of banks and the non-banking public of the country for the execution of budgets. Borrowing from external sources can come from organized international financial institutions like the African Development Bank or the World Bank or from the international capital market like the euro market. Borrowing from the World Bank or AfDB is usually much cheaper than on the international capital market, but there is some due diligence involved in approving and releasing funds, which is absent in the other window where interest rates are at commercial rates or very high depending on the market. forces of supply and demand.

Additional borrowing in the form of sales of development bonds such as Sukuk bonds is often incorrectly referred to as deficit financing. This is not true as these borrowings are for long term development in specific sectors of an economy, while the deficit financing items are short term one year at a time. The Sukuk bond in Nigeria, for example, has been dedicated to infrastructure development that can span five years or more. But borrowing from the central bank to fund a year’s budget has become a common occurrence under the current government. It should come as no surprise, then, that inflation has become intractable and the depreciation/devaluation of the naira, one of the by-products of such acts, has become inflexible.

In addition to the CBN’s direct financing of the deficit budget, it also intervenes in certain sectors of the economy through monetary transfers. This liquidity adds to the volume of liquidity in the economy, which invariably serves as a catalyst for inflation and the depreciation of the naira. The Economic Intelligence Unit of the World Bank, in a publication, explained that as central banks put in place policies to contain inflation, the CBN is inadvertently promoting inflation through the unchecked direct financing of deficits. public. The report states that “the CBN continued to print more money for the Federal Government, whose overdraft facility with the CBN reached N19tn ($46 billion) in April 2022 from N17.4tn at the end of 2021.” With this level of lending, the CBN violated the rules governing the limit of the Bank’s overdraft facilities to the government.

In addition, “the CBN also runs a range of direct lending programs for the agriculture, manufacturing and energy sectors, currently totaling around 3.6 billion naira ($9 billion). CBN’s action in direct project finance is unusual and the first of its kind in the world This is because a central bank is not equipped to engage in retail banking, especially more that we have specialized banks, like the Bank of Industry and the Bank of Agriculture, which were created to finance specific sectors of the economy and the funds should have been submitted to them for implementation at name of the CBN. But we have to understand that was how CBN Governor Godwin Emefiele could sell himself to the electorate, given his truncated ambition to become President of Nigeria. That is what we can call the economy of self-interest, which violates the public interest.

Is the CBN concerned about the deteriorating value of the naira? It seems so, except that the Bank was looking for a candidate to hold accountable instead of looking for itself in terms of policy formulation and implementation. An otherwise innocuous bureau de change fell victim to the mismanagement of the CBN. The CBN should now be firm in refusing direct financing of budget deficits and let the government know what the exercise is causing from the domestic value of the naira, the high cost of domestic production and the consequent lack of competitiveness of our domestic products by compared to foreign products. This is a way to bolster the value of the naira or the CBN Governor will be seen as the one who took the naira/dollar ratio from N1-180 to N600 at $1! Ha!

The Ministry of Finance, Budget and Planning will need to begin adjusting its spending to reduce deficits and take control of federal revenues by monitoring inflows and outflows through the use of technology. Macroeconomic policy should focus on growing domestic production at low cost to make selling prices affordable and encourage the purchase of domestic products for consumption, thereby promoting employment and increasing the number of people who will pay taxes. to fund budgets.

This is the time when the country should benefit from high oil prices, but there have been reports of underproduction of crude oil for export in the oil sector. If this is true, and not that some are playing with the revenues of this sector, it is time for the Minister of State for Oil, Timipre Sylva, to roll up his sleeves and go to the field to fix things so that we can sell more , build up the external reserve and be able to cover the cost of importing refined petroleum products while working to eliminate shameful imports. Agriculture Minister Mohammad Mahmood Abubakar also has his work cut out for wheat production. We are told that Nigeria is the leading exporter of cassava, but bakers claimed that the lack of cassava made it difficult to reduce the amount of wheat needed to make bread. Thus, the so-called cassava bread remains an experiment. Finally, I call on politicians not to bribe with dollars in the general election, this will further destroy our currency. We have to start getting it right.

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