WHERE ARE THE OIL DOLLARS? 31072006

The Chairperson of the Federal Inland Revenue Service (FIRS), Ifueko Omoigui recently revealed at a Management Meeting of the FIRS in Abuja the outstanding success of this government agency in collecting about N1.13 trillion in place of just over N730bn in the federal government’s 2006 budget for projected earnings for January – June this year.  Inspite of this commendable level of success the FIRS Chief Executive was unimpressed as she expressed that tax evasion by multinationals, particularly the oil companies robbed the nation of a huge amount of additional revenue.  

In Ifueko Omoigui, we seem to have a rare breed of Nigerian public official, who does not indulge in self adulation!  In the light of the assurances of the FIRS boss to motivate her staff to greater achievements, we have good reason to expect that total internal revenue collection for the twelve months ending December 2006 will exceed N2 trillion.  Thus, the sum of about N1.9 trillion authorized aggregate spending for the federal government in the 2006 Appropriation Act would have been provided from tax receipts alone!  In the last several decades, the mega dollar receipts from our sale of crude oil usually accounts for almost 90% of total consolidated revenue.  The spiraling cost of crude oil to over $70/barrel for most of this year suggests that the revenue contribution by crude oil may even exceed 90% of total receipts into the treasury.  

In this event, we may safely project that the 90% contribution would translate to over N18 trillion, while the addition of the projected 10% tax revenue of N2 trillion will amount to a consolidated revenue of about N20 trillion for 2006.  Even if states and local governments also get equal appropriations as in the 2006 budget with the federal government, the total appropriation for the federation would be N1.9 x 2 = N3.8 trillion.  In other words, we would save over N16 trillion from the total potential revenue of about N20 trillion for 2006!  

Classical tradition teaches the virtue of thrift. Nonetheless, an admonition for thrift of such intensity at a time when we lament our inability to pay the allowances and benefits of patriotic pensioners, or provide a living wage for most civil servants, including our police force and other security agencies, at a time when our schools and hospitals are in desperate need of funding and our mass transit and power infrastructure require urgent capital injection may be inverted wisdom!  It is bizarre that inspite of our projected huge idle savings of over N16 trillion for 2006, this administration continues to indulge in public sector borrowing with heavy interest burdens on our people to further compound our already bloated national savings.  

In a drama of farcical proportions, the authorities offer treasury bills and bonds for cash sales and pay rates of interest of between 12 and 17% respectively per annum.  Interestingly, the huge cash borrowings which exceed N60 billion every month are simply sterilized or warehoused (or more plainly, taken out of the system  for the nebulous purpose of ‘deepening’ the government security market and curbing excess liquidity in the system!)  Holy Moses!  Indeed, the sum of N75 billion currently owed to public sector pensioners will soon be settled by borrowing at interest rates of 17% from the money market inspite of our idle savings.  Never mind the dent that N75bn (i.e. about $600m or the equivalent of the value of capital base of three of our mega banks) would create on the banking sector’s capacity to lend to the real sector for income and employment generating investments.  Meanwhile, the CBN will have further justification for borrowing back most of this N75bn through treasury bills or other bonds to reduce the inflationary push that the additional liquidity in the hands of pensioners would bring about!  A case of a dog chasing its tail, some would say!

Admittedly, most of the projected savings of about 16 trillion naira would remain denominated in dollars as most, if not all, of the residual savings were derived from the sale of our crude oil in the export market.  With our dollar reserves of about $34bn, our treasury is surfeit with naira borrowed from the local money market through bills and bonds and huge foreign reserves closeted as low interest yielding deposits abroad.  Meanwhile, over 80% of Nigerians live on less than $1/day and Nigerians are rated amongst the world’s poorest people!  

Nigerians should confidently ask the architects of our monetary and economic predicament the reasons for these contradictions.  We should demand an answer for high interest rates, when Mr. President had, himself, continuously demanded single digit interest rates as a motivator for industrial and agricultural capacity building!  We  should reject explanations that connote that interest rates remain high because of the need to curb the propensity to borrow from the huge pool of excess cash in the system and demand to know how we can have excess cash and yet have no cash with which to pay pensioners or spend on improving our infrastructure in the areas of mass transit, education, health, etc!

Nigerians should demand to know how the perennial scourge of excess cash in the system comes about and why our monetary authorities are considering the sharing of our dollar reserves amongst our newly created mega banks at  rates of interest below 5% while  opening up avenues for these mega banks to recycle (or roundtrip) the dollars by converting same to naira and loaning such naira funds back to government at a cost of between 12 and 17%!  

We need an answer to why the CBN should sell the dollars which belong to the three tiers of government to the black market, such that each registered Bureau de Change (BDC) is allocated $400,000 per week so that they can fund the activities of big time smugglers and provide a ready source of exchange for the kleptomaniacs in the public service!  If there are 1000 BDCs throughout the country, we will be funding the informal market with over $1.6 billion per month, instead of using our huge dollar reserves to fund the genuine needs of the real sector and improving the value of our naira in line with our ‘excess’ dollar holdings.  

These are questions that the government’s economic team will not be able to give sensible answers to; they are more likely, as Prof. Soludo did recently, to ascribe these anomalies to their inability to control states and local government expenditures and the need to control the ‘excessive’ volume of cash in the system.  They will not confess that all the above ‘inexplicables’ originate from the CBN’s conversion of our export dollar revenue to naira before sharing to the three tiers of government.  They will also not let on that they are aware that payment of dollar earned revenue with dollar certificates will bring the economy to an even keel and dispel all the contradictions above.  They will not do so because the banks currently control our destinies and such a policy direction will sap the juice from the banks and dry up the excessive profiteering of the banks so that the real sector will rise again.