PARABLE OF THE FOOL AND HIS MONEY…
BY LES LEBA
The other day, a friend narrated a story, which I found stranger than fiction; the story related to the travails of a family who lost a successful and illustrious breadwinner, who, incidentally, died without a Will. The family’s elders were consequently entrusted with the responsibility of efficiently managing the estate of the deceased.
In spite of the huge credit balances, lucrative estates and other profitable income generating businesses, the Elders’ Council thought it wise to consolidate the incomes from these investments as savings for future generations! Consequently, rather than spend from the robust income streams available, the Elders’ Council, in their wisdom, gleefully funded their expenditure by borrowing at over 15% interest rate from their bankers, while their savings earned paltry yields, often below 5%.
Predictably, the oppressive interest charges rapidly gulped up the erstwhile flourishing income streams until the mortgaged estates were systematically acquired by the banks as repayment for mounting debts. Within a few years, the once prosperous business became bankrupt and the family was reduced to penury.
I wondered aloud to my friend, whether this story related to a family made up of stark illiterates, but I was surprised when he confirmed that the Elders’ Council comprised a team of reputed professionals, who were educated in some of the best universities in the world!
When my friend took his leave, I quietly wondered if the story I had heard could ever be true; however, later that evening, it occurred to me that as outrageous as it may seem, in reality, the story of this tragic family appears congruent with the story of our country, Nigeria!
Nigeria is, undoubtedly, abundantly blessed with resources; for example, crude oil revenue alone often exceeds projected annual spending. Curiously, managers of our economy annually deliberately understate projected revenue with very conservative benchmarks for crude oil price and output. Government subsequently proceeds to finance the anticipated ghost deficits by borrowing at oppressive rates often above 15%, while simultaneously consolidating revenue ‘surpluses’ as savings deposits with yields well below 5%, particularly for dollar or euro denominated deposits!
It appears to be of no consequence that the same banks that receive our incomes and deposits for little or no yield are predominantly the same sources, which fund our government’s borrowings. Pray, why borrow back your own money at excruciating costs?
These banks, which currently post hundreds of billions of naira profits, are the same banks, which were also beneficiaries of over N5tn government funding in the last three years, according to recent reports from AMCON; meanwhile, revitalization of the real sector has remained just a promise!
Despite the huge borrowings to fund budget ghost deficits, the ‘surplus’ income is regularly hounded into a so-called Excess Crude Account or alternatively consolidated in a savings account designated as a Sovereign Wealth Fund; the yield from either account is probably below 3%. Incidentally, the constitution does not recognise either of these accounts, which are definitely discordant in a truly federal constitution.
Instructively, the funds consolidated in both accounts may ultimately become inadequate for the liquidation of the rising debts, which were unnecessary in the first place, as we generated adequate income to have forestalled these humongous government borrowings!
So, as it is with the misguided recklessness of the Elders' Council in our earlier story, so it is with the management of the Nigerian economy. In spite of our fortuitous resource endowments generating more income than projected in our annual budgets, government remains committed to a strategy of borrowing at excruciating rates of interest to fund budget ghost deficits, which are deliberately instigated by understating projected revenues annually. It is no wonder, therefore, that despite these increasing ‘surplus’ savings, there is deepening poverty and very little on the ground, nationwide, to show for our bourgeoning debt profile. Meanwhile, the managers of our economy would grab every available opportunity to extol the wisdom of a fiscal strategy, which will take us nowhere!
Nevertheless fortunately, all is not lost, as the National Assembly constitutes a superior authority over the powers of the economic team. Indeed, in May 2008, in an article titled "National Assembly Fiddles as Debt Burden Cripples", this writer warned the National Assembly to arrest the rapidly increasing debt accumulation by the Debt Management Office and the Central Bank; regrettably, the National Assembly remained reticent.
However, now that the cancerous impact of reckless debt accumulation has become very glaring, the current legislature would have failed our nation woefully if they do not immediately stop all government borrowings. It is necessary that we first determine the reason for accumulating an oppressive debt burden, which would be avoidable if current income streams are used to fund ghost deficits instigated by deliberate understatement of annual projected revenues.
The above is an excerpt from an earlier article published in December 2012! Anyone who doubted the credibility of the riches-to-rags story of the rich man's family should now take a second look at how the travails of the family is loyally mirrored by the reckless management of our economy by our distinguished and acclaimed Economic Management Team. Recently, none other than our own Central Bank Governor, Lamido Sanusi, has belatedly conceded, as regularly canvassed in this column for over a decade, that it does not make sense to continue to fund the cash base of banks with government deposits, only for the same CBN to return to the same banks to borrow back government funds at between 13 and 14% interest rates, just to simply sterilize (or keep idle) such funds from use!
In realisation of this oppressive anomaly, the CBN has lately directed that only 50% of government deposits in banks should be seen as part of the 12% Cash Reserve Ratio of banks! In spite of this directive, the burden of surplus cash remains problematic, as the CBN and DMO have additionally borrowed well over N300bn from the banks just to reduce cash supply in the economy!
SAVE THE NAIRA, SAVE NIGERIANS!!