23

Mar

ECONOMY: BUHARI AND CBN PULLING APART 28032016

2016-03-28

ECONOMY: BUHARI AND CBN PULLING APART
BY HENRY BOYO

The National Assembly approved the 2016 Appropriation Bill, just a day before recess, on Wednesday March 23rd; the approval was in fulfillment of the Appropriation Committees' promise to do the needful before the Easter break. However, the Senate Appropriation Committee's Chairman, Danjuma Goje, acknowledged that the three months delay before implementation commenced, could have been avoided if the Budget was presented in good time.

The obvious lesson from Senator Goje's observation is that, budget consultations for 2017, should begin as early as May 2016, to allow for extensive and thorough deliberations, within a schedule that will facilitate legislative approval by December, so that implementation can promptly commence on January 1st next year.

Nevertheless, some political leaders and financial experts and analysts may have encouraged the misguided public perception that, the present challenging economic pressure would begin to diffuse once the budget is passed. Regrettably, the barely tangible social impact of budget implementation in previous years, surely, do not justify any suggestion that the outcome of the 2016 version will be different. The recent undenied revelations of pervading, systemic monstrous rape of the Treasury, in the guise of budget implementation, probably explains why our nation's fiscal plans failed, for several years, to significantly enhance social and economic welfare.

Nevertheless, although Buhari’s 2016 budget may indeed be the highest ever in nominal terms, by any administration, however, the 2013 N4.98tn budget (with N155=$1) may actually be worth more in real terms. Thus, a mere nominal escalation of expenditure will not necessarily guarantee more economic activity and social dividends, if the Naira suffers further devaluation. 

So, ultimately, what are the assurances that Budget 2016 would succeed where others failed? Indeed, if truth be told, the early signals do not inspire much hope; arguably, no appropriation bill, in our history, has so embarrassed the sponsor as this year's plan. Curiously, despite very late submission, the budget was subsequently declared missing, fiddled with, then found and corrected; but, it is still not clear how  the alleged serial padding and other multiplicity of 'doctored contents' therein, were eventually satisfactorily resolved, with dispatch, within two weeks! Incredibly, there were no reports, for example, that the Health Minister, or indeed any other MDA returned, as demanded by several Legislative Committees, to harmonise those controversial items queried in their earlier expenditure projections.

Curiously, the Legislators, obviously also saw nothing wrong in approving a budget, in which about N500bn (i.e. over 8 percent) is set aside as intervention funds, without a clear strategic expenditure plan that will guide accountability, transparency and efficiency in the disbursement of funds. It is equally worrisome, that despite the collapse of crude oil prices and the troubling reality that we presently allocate 35kobo out of every Naira income to service existing debts,  the Legislators happily endorsed additional loans, despite the related oppressive interest rates required to fund the projected N2.2tn deficit.

Conversely, Buhari would have demonstrated fiscal prudence with a sensitive, patriotic and Presidential concern that Nigerians yet unborn, will not become shackled by a crippling debt burden, if the 2016 deficit can be covered with alleged recovered loot and the surplus funds reportedly consolidated from the operation of the Treasury Single Account, rather than to hurriedly embark on more debt accumulation to fund the deficit.

It is also bewildering nonetheless, that inspite of the several contentious issues surrounding the integrity of the 2016 bill, the Legislators, felt compelled, after presumed, diligent consideration, to reduce just N17bn from the liberal and admittedly padded N6.08tn initially projected in Buhari’s controversial budget.

Nonetheless, the N6Tn plus expenditure projection has been commended as a reflationary budget, inexplicably, simultaneously with inflation rising uncomfortably beyond 11percent, i.e. well beyond CBN's 9percent target, and certainly miles away from best practice rates below 2percent, in successful economies everywhere. Notwithstanding, some analysts have also suggested that the antidote to our economic condition is to spend our way out of poverty! Thus, according to this advocacy, even if we have to borrow or print more money to do so, more funds must be made available, preferably at low cost, to facilitate increase in public and private spending. 

The above perspective, however, invariably assumes that Nigeria's present economic downturn is the product of acute shortage of money; thus, it assumes that making much more money available for spending, should expectedly stimulate economic activity and create more jobs. Ironically, however, the CBN as sole author of money supply in Nigeria, would beg to differ on the allegedly benign impact of further increasing money supply. Infact for decades, the CBN has ceaselessly engaged in an unending battle to reduce excess money supply from the system. Evidently, systemic excess money supply is actually the number one enemy against the achievement of CBN's core mandate, to ensure that the general price level does not rise above best practice levels of 2percent annually; while cost of funds would also be kept at levels that would encourage and support a boisterous, inclusive, and competitive economy. Regrettably, with inflation currently beyond 11percent and cost of borrowing well above 20percent, the CBN has clearly consistently failed in achieving this defining mandate.

Incidentally, in response to the serious challenges posed by the perceived present oppressive level of money supply, the CBN’s MPC recently resolved, to further tighten money supply in order to stop further spiral in the general price level. Consequently, a day before Budget 2016 was approved, CBN raised the cost at which it would lend to commercial banks from 11percent to 12percent, and similarly raised the percentage of customers' deposits that banks must keep as reserves with the Apex bank from 20percent to 22percent.

The object of CBN's higher policy rate, is apparently to instigate commercial banks to also raise interest rates on loans to their own customers; similarly, the increase in cash reserve ratio is also designed to reduce the amount of funds that banks can lend out to customers. So in a rather farcical twist, while Buhari is being commended for proposing to spend big in order to stimulate consumption and build infrastructures, the CBN, which alternately manages monetary policy and money supply is busy restricting access to loanable funds and infact also ensuring that all borrowers, including the real sector, will become discouraged from seeking loans, if for example, it costs over 20percent to borrow.

Paradoxically, in order to compensate for this faux pas, the CBN's usual response is to compulsively create and inject more intervention funds to special sectors. Regrettably, such intervention funds only further compound the already systemic excess money supply, and will therefore inadvertently simply instigate further inflationary push. Consequently, the CBN would again be forced to respond, with more borrowing with its regular Treasury Bill auctions, despite the attendant high interest paid to banks and other investors on hundreds of billions of Naira which will simply be warehoused as sterile by Central Bank.

Unfortunately, the critical role of supportive monetary indices to economic growth has often been downplayed by the media. Evidently, a N6Tn plus fiscal expenditure is barely 6percent of the consolidated potential annual expenditure of N100-200Trillion in Nigeria's private sector activities. Instructively, special intervention funds failed in the past and will continue to fail to successfully drive inclusive economic growth. However, a best practice optimal mix of the critical monetary indices of inflation, cost of funds and realistic market determined exchange rates will propel our ability to turn our latent wealth into enviable affluence with more jobs and enhanced social infrastructure.

Ultimately, therefore, even with Buhari and CBN's best intentions, the harsh economic times may remain for much longer if our monetary and fiscal policy directions remain in conflict.

SAVE THE NAIRA,SAVE NIGERIANS!!