T/BILLS: WHO WILL STOP THIS LOOTING SPREE?
BY HENRY BOYO
The contradictions in our failed economy are probably best captured by the stark reality of deepening poverty and unbridled rate of unemployment despite the celebrated recent increase in our Gross Domestic Product, with increasing revenue and bountiful external reserves to boot for almost two decades!
We may recall that despite the paltry $4bn national reserves during the Abacha years, when Nigeria also remained a pariah nation, our country and our people continued to enjoy credible ratings as a developing country with great promise with the Naira exchanging for just N80=$1.
Ironically, Nigeria became a regular contender in the list of the world’s poorest nations only in recent years when our dollar reserves hardly fell below US30bn with the attendant more favourable, extended payments cover for our import bills.
Indeed, a closer examination of prevailing fiscal and monetary strategies may suggest that we are in denial of the deeply rooted causes of deepening poverty.
For example, it is inexplicable that a country with acute infrastructural deprivation will progressively tilt its annual budgets in favour of consumption, such that the 2015 Appropriation Bill presently allocates barely 20% for supportive Social infrastructure.
Similarly, despite UNESCO’s best practice recommendation for 26% of budget allocation to education, we have barely attained half of this ratio in recent years!
Nonetheless, it is the area of monetary policy strategies that the contradictory impact of government’s decisions become more glaring; regrettably, however, these same strategies that antagonise industrial growth and social welfare, have in the manner of steady propaganda, become accepted as best practice options by the public..
Hereafter, we will briefly discuss the difference between public perception and the actual reality of the impact of CBN’s monetary strategies. Ardent media followers will already be familiar with CBN’s unchanging response to what is generally branded as “excess liquidity”. Media reports generally describe the process in which Central Bank borrows hundreds of billions of Naira monthly, by selling Treasury bills to the banks, as a supportive strategy “that assists commercial banks to manage their surplus cash holdings profitably.”
Sadly, such positive media undertone induces public perception of CBN as a supportive, attentive and proactive Agency, which is relentless in its efforts to empower banks to perform their roles as strategic mediators between investible funds and the real sector so as to rapidly grow the economy.
The Media, both print and electronic which re-echo such positive undertone of CBN’s surplus cash management, are indeed in-advertent collaborators with the Apex bank to mischievously misrepresent the economic and social utility of this monetary strategy.
Conversely, if the Public and the media had carefully monitored the trend of CBN’s borrowings with Treasury bills, certainly, the regularity of alleged Naira surplus, and the frequency of government borrowings to restrain bank lending would appear as bizarre strategies which required urgent interrogation; for example, it would be sensible to ask why the ever present burden of surplus Naira exists alongside acute shortage of cheap funds required to ignite and sustain increasing productivity of the real sector of our economy.
Furthermore, it is inexplicable that inspite of eternally surplus Naira in the system, cost of funds should remain oppressively high and a deterrent to real sector growth and creation of more jobs; certainly, there is probably nothing that rises in price when its supply is excess, so why does the CBN, wilfully, borrow allegedly surplus funds at exceedingly high rates of interest (between 9-16%) for what are clearly risk free sovereign loans!; how much did it cost The CBN to service such oppressive loans in recent years? Besides, what is the origin of the unstoppable flood of surplus cash?
The CBN’s usually terse defence that its strategy is designed to restrain inflation from spiralling out of control as a result of systemic surplus Naira chasing few goods, is generally accepted as sufficient explanation for the contradictory social and economic impact of its standard counter measures for restraining surplus spending power in the economy.
It is worrisome that the public also assumes that the trillions of Naira borrowed annually, over the years at such high costs are actually applied to the improvement of our social infrastructure. This, however, is far from the truth; we must remember that if the funds were mopped up because they were adjudged to be excess and antagonistic to the promotion of stable market prices, it would be counterproductive to re-introduce the same funds into the system, by re spending it for any purpose whatsoever! Curiously, therefore, despite the heavy collateral of increasing national debt with the attendant shylock service charges, the Apex bank actually also consciously crowds out the real sector from the available funds in the market by borrowing trillions of Naira that will simply be sterilised (kept idle) annually, inspite of the clearly inappropriate and oppressive double digit interest rates for such risk free sovereign debts!
Expectedly, the attendant bonanza profit for doing nothing is sufficient attraction for commercial banks to shun lending to the real sector, particularly the SMES. Clearly, therefore, CBN’s Treasury bills borrowings remain the actual enemy of industrial growth as well as a major threat to job creation, thus probably making CBN’s T/Bills strategy, Nigeria’s number one enemy of inclusive economic progress!
If the impact of CBN’s failed monetary strategy is understood from the preceding narrative, the media will certainly be more circumspect in their evaluation and unfortunate tacit endorsement of the impact of the current strategy for mopping up excess liquidity. Indeed, despite clearly desperate monetary controls, such as 75% cash reserves requirement for public sector deposits and 20% for the private sector, with MPR also at the industrially disenabling rate of 13%, excess liquidity still remains uncaged. Sadly, the body language and monetary measures recently rolled out to checkmate inflation by CBN suggest that it will be more of the same menu that has deepened poverty in the midst of plenty!
On the 19th of December 2014, for example the CBN borrowed N195bn with Treasury bills to mop up unyielding surplus spending power from the system; soon after, the Apex bank also gave notice of its intention to additionally borrow about N1.2trn between January –March 2015. Thus, in less than 14 weeks, the debt service charge attendant to these loans, which incidentally, will simply be kept idle, may exceed N150bn; indeed if this reflects CBN’s liquidity strategy for the rest of 2015, we may require close to N600bn to service loans which will not be applied for any social or economic improvement; furthermore, the CBN’s crushing monetary policy rate of 13% will continue to deter economic growth and stunt the development of SMES. Ultimately the army of unemployed Nigerians will continue to expand.
Who will save Nigerians from the unceasing liberal looting of the treasury with auctions of government treasury bills? Instructively, however, the allocation of dollar denominated revenue with dollar certificates will eliminate or minimise the destabilising economic and social burden of eternally mopping up surplus Naira, and also support inclusive economic growth in place of deepening poverty.
SAVE THE NAIRA, SAVE NIGERIANS!!