By Boniface Chizea
The issue of printing of currency notes raised by my friend Godwin Obaseki, the Governor of Edo State has very much dominated popular discussion for a few days now. I was going to quietly continue with taking in the arguments as they raged front and backwards but as I did that, I observed that one critical point was missing.
Everyone who commented has come with their perspectives of how wrong it is to print notes as if there is anyone oblivious of the deleterious consequences of such a development for microeconomic stability, and some have gone 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 counter factual.
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 18.3 per cent; the highest rate since January 2017 when the rate was an unsupportable high rate of 18.72 per cent, about four years ago! Therefore, this most certainly are unusual times in Nigeria.
Let’s for the sake of this discussion accept that some 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 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 and therefore in keeping with its clean notes’ policy withdraws now and again worn-out notes in circulation and prints new notes to replace them. That is the only time the Central Bank would resort to physical printing of notes.
So as Obaseki claimed that N60 billion notes were printed to augment the available money for FACC allocation and there has been rebuttal from the desk officer, the Federal Minister of Finance that there was no printing. But suppose there was such a gaping shortfall and the 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 Nigerian space will be ungovernable. We must accept the fact that the Federal Government is under no obligation to share money 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 back yard and pay tax to the centre for the provision of common services. Therefore, 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 these steps were taken, or rather were being taken, because there is little choice?
So, the option of stoking inflationary pressure poses a lesser danger than not being able to pay salary to large numbers of the workforce. And 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 6.1 trillion Naira. How was the deficit funded? Two trillion Naira was borrowed from Domestic sources, 1.1 trillion was sourced from external sources and the outstanding of about 3 trillion Naira was borrowed from the Central Bank otherwise the economy could have ground to a screeching halt.
And 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 interest due on such borrowings is 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 extended to the States in 2015/2016 was still outstanding and the Central 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 International Monetary Fund had recommended a ratio of 55 per cent for countries in Nigeria peer group. Of course, we are all aware that Nigeria’s problem with fiscal sustainability arise 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.
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.
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. etc. 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 omelette 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 funding simply because there are limited options otherwise, we end up with a space impossible to manage.
•Boniface Chizea is CEO, BIC consultancy, Lagos.