TREASURY BILLS: CAN NASS STOP THIS TREASURY LOOTING?
BY HENRY BOYO
In a report titled “FG’s Monetary Policy injurious to job creation” in the Vanguard newspaper edition of June 7, 2014, Adams Oshiomhole, the Edo State Governor described the Central Bank of Nigeria’s Monetary Policy framework as injurious to job creation. Oshiomhole observed that “current monetary strategy would discourage employers of labour from setting up businesses because interest rates are very high”; in the Governor’s words, “it is like telling someone to live long and then giving him poison”. “How can you create jobs, by pricing money out of the reach of investors in the name of achieving market stability?” Oshiomhole concluded that rapidly increasing job opportunities will not be possible without appropriate supporting infrastructure and liberal access to cheap funds.
Similarly, The Guardian newspaper edition of 6/6 2014 (Pg 17) had reported that the Chartered Institute of Taxation of Nigeria (CITN), at its recent annual general meeting, advised that “government should consider a complementary policy of free returns on Treasury Bills and bonds”. The Chairman of the Institute, Mike Chidolue pointed out that this would stimulate “free flow of bank credit so that the private sector could gain better traction, than it presently does”; i.e., if government stopped paying inordinately high interest rates to remove perceived excess Naira supply from banks, a larger flow of cheap loanable funds will become available to the real sector for investment and job creation.
Indeed, Nigerians must wonder why our government’s risk free sovereign loans should attract interest charges as high as 15% when infact similar loans in focused, disciplined and successful economies cost less than 4%. Nigeria’s accumulated long-term domestic loans (bonds) currently exceed N10tn ($60bn) and will attract over N700bn as debt service charges (i.e. almost 70% of total capital expenditure of N1.2tn) in 2014. This already oppressive debt service charge exclude over N300bn also projected for servicing short term loans (Treasury bills) which CBN, impulsively, regularly raises to remove perceived surplus cash from the money market at double digit cost, in order to restrain inflation.
Ironically, CBN’s anti-inflation strategy deliberately instigates obnoxiously high interest rates which crowd out investors’ access to the alleged existing surplus cash; furthermore, it is inexplicable that surplus cash can exist side by side with scarcity and restrained access to cheap loanable funds to the real sector; surely, no commodity becomes more expensive when there is market surplus of that item!!
Regrettably, our government may have spent over $20bn (over N3tn) since year 2001 on interest payments to banks for the simple joy of keeping the surplus cash of commercial banks as idle deposits with CBN. The Apex bank has often defended this disruptive monetary practice by insisting that, when there is systemic excess Naira supply, it is imperative to stop the threat of inflation (i.e. too much money chasing too few goods) by reducing the available amount of spendable /loanable funds in the market.
In reality, the challenge of excess liquidity (surplus Naira) is not peculiar to the Nigerian economy, but surely, no successful economy pays double-digit interest rates for borrowing funds, which are intended to be ultimately kept sterile as idle deposits! Indeed, the European Central Bank (ECB) recently tackled this same issue in favour of its citizen’s welfare, by directing that European banks would henceforth pay the ECB a modest interest rate of 0.1 percent on the surplus-cash balances, which commercial banks mandatorily keep in the custody of Europe’s Apex Bank.
Clearly, nothing stops our own CBN from pursuing a similar negative cost strategy for managing perceived systemic surplus cash. Expectedly, the profitability of Nigerians banks have, over the years, benefited significantly from continuously receiving government deposits at zero percent while the Central Bank turns round to pay double digit interest rates for the simple joy of warehousing the “excess” cash balances of these banks, when ironically, the same beneficiary banks of such largesse offer barely 5% for the custody of their own customers’ deposits?
Inexplicably, our Economic Management Team, respected public analysts, and indeed the general media, have often mischievously applauded this predatory strategy as best practice. Nonetheless, in its efforts to control money supply, the CBN has always, surprisingly clearly ignored consideration of other more socially responsible strategies which support industrial and economic growth with increasing job opportunities.
For example, the CBN could in reality, effectively, easily modulate the problem of perceived surplus cash by simply increasing the mandatory cash reserve and liquidity ratios for banks.
Thus, if for example, the mandatory cash reserve requirement for commercial banks is raised across the board from the current 15% to even beyond 50 percent, (for both public and private sector deposits) the CBN would more efficiently reduce the erstwhile eternal burden of systemic surplus cash without the collateral of liberally subsidizing commercial banks with over $20bn which could have been better applied to infrastructure and real sector funding since 2001.
The belated increase of cash reserve requirement to 75% for public sector deposits alone, is certainly misguided and ineffective as it ignores the reality that public sector deposits cannot be sterilsed from disbursement for wages, contractors’ fees, etc, which are invariably private sector accounts.
Nonetheless, it is undoubtedly more socially responsible to control the unceasing CBN self-instigated burden of ‘surplus cash’ at no cost to Nigerians as currently practised by the European Central Bank (ECB) rather than wastefully support exceptionally bounteous commercial bank profits at the expense of the welfare of our people.
If CBN emulates the people and growth supportive ECB monetary strategy, the decades long free lunch enjoyed by banks in receiving bonanza interest rates on government’s free funds would be over and the banks would have no other alternative than to pay serious attention as recently demanded by Oshiomhole and the CITN Chairman, to enthusiastically collaborate with the real sector to provide increasing investment funds at reasonable cost.
Curiously, however, our monetary authorities have remained in denial that the true and incontestable cause of eternally surplus Naira, which fundamentally distorts our economy is actually, CBN’s monthly substitution of Naira allocations for dollar derived revenue.
The critical question however is, who will bell the cat; certainly not the Economic Management Team which consciously condoned this anti-people subsidy of banks for so long; certainly also not the CBN, whose steady accumulation of comparatively buoyant reserves were made possible with the crazy strategy that eternally creates surplus cash with Naira substitutions for dollar revenue to systemically poison the whole economy. Regrettably, our internationally acclaimed experts, in the Federal Executive who surprisingly gloated over CBN’s socially oppressive strategy for so many years may not also rise to the task! The question is, can the National Assembly stop this blatant oppressive, and anti-people economic mismanagement or are we to assume that they may also be complicit in the ongoing treasury looting?
SAVE THE NAIRA, SAVE NIGERIANS!!