BUHARI'S COMPULSIVE LEAP INTO A DEBT TRAP
BY HENRY BOYO
In a recent discussion with some media practitioners, I 'innocently' asked the innocuous question of who actually owns the reported foreign reserve balance of about $27.8bn? Expectedly, the response was a spontaneous chorus of "Nigeria of course"!
But, then I quickly reminded my audience of an incidence in far away China just about three years ago, when former President Jonathan and Co-ordinating Minister of the Economy, Ngozi Okonjo Iweala, visited Beijing with the prime objective of seeking a $1.5bn 'soft' loan, to IMPROVE our decayed transport infrastructure.
Incidentally, Lamido Sanusi, the incumbent Governor of CBN was also in President Jonathan's delegation, albeit, apparently, for a different purpose. Indeed, in response to questions from journalists, Sanusi noted that, he was seeking to diversify CBN's foreign currency reserves away from dollar holdings, and the Chinese Yuan was consequently being considered as an option; in essence, CBN would exchange part of its dollar reserves for Yuan. Thus, in a farcical twist, Chinese Bankers who exchange their Yuan for Sanusi's dollars, could also turn around and offer the same dollars, plus the additional cost of borrowing to Jonathan's delegation; in such event, Nigerians would have been sold a dummy. Surely, it is a travesty, to traverse the world in search of dollar loans, when our own CBN was equally in possession of idle dollar reserves which earn minimal or nil returns.
Ultimately after the preceeding narrative with my audience, I repeated the question of the ownership of the present $28bn reserves? Not surprisingly, this time, everyone chorused something to the effect that "the CBN obviously owns the reserves". However, the news of President Buhari's imminent visit to China in search of part of a $4.5bn foreign loan, despite CBN's ownership of almost $30bn largely idle reserves, clearly evokes memories of the embarrassment of the Jonathan/Okonjo Iweala/Sanusi earlier misadventure in China in 2013.
Surely, it would be more responsible financial management, with obviously less risk to our sovereignty, to borrow $5bn directly from our own CBN, than to further expose the nation to increasing debt accumulation, particularly when we already require up to 35kobo from every Naira income earned to service the existing debt annually. It is clearly irresponsible to compulsively seek any additional loan (whether domestic or external) without first shedding the 'excess fat', which Buhari has discovered to have been mischievously, and deliberately couched in the 2016 budget. Indeed, the responsible presidential patriotic concern that we do not stumble into another ignoble debt trap, should have advised Buhari against further borrowing until a thorough audit of ongoing capital projects have been completed, to determine their viability and potential for positive social and economic impact. Indeed, the President's men should have meticulously sieved the wheat from the chaff, with these projects to save the Nation, the agony of wasting the hundreds of billions of Naira already spent on projects which are then simply abandoned for political or self serving reasons.
Similarly, it is also pertinent to interrogate why the sustenance of an unwieldy deficit and related borrowing plan in the 2016 budget remains sacrosanct, when indeed, the projected revenue shortfall could have been funded from non debt sources, such as the elimination of the alleged fraudulent components of the budget and the capture of the significant revenue accruals from the loot so far recovered from corrupt public servants. Additionally, the Trillions of Naira reportedly consolidated from operating a Treasury Single Account should also be deployed to avert an increase in Nigeria's debt.
So who are the 'smart' civil servants who sold Buhari, the dummy of the highest ever budget deficit, despite the stark reality of dwindling revenue? Furthermore, what advised the decision to borrow over a third of the budget rather than to, cut our coat responsibly, according to our cloth, so that we do not to compound an already oppressive debt burden, especially, if as projected very low crude oil prices persist and additional borrowing again become imperative to sustain expenditure in 2017.
Furthermore, even if Buhari's government must borrow from the domestic market, why aren't such loans, obtained at minimal or nil cost from the trillions of idle Naira deposits, that CBN continuously borrows with high interest and warehouses as sterile funds to restrain spending and check inflation, despite the scarcity of cheap loanable funds to the real sector and the inordinate cost of such counterproductive loan accumulation.
Similarly, the CBN's still substantial dollar reserves, which currently earn little or no yield, could also have provided a ready, and less risky source of raising the projected $4.5bn foreign loan required to partly fund the 2016 budget. Indeed, the residual reserve in CBN's custody after such deduction, is indeed, still exceeds the reserves of most African Countries, with the exception of Algeria and South Africa.
Nevertheless, the misguided public perception still persists, that it is more economically redeeming for billions of dollars to remain as idle reserves with CBN, rather than to apply same to fund budget deficits and eliminate the risk of borrowing externally at shylock rates, that may eventually mortgage our sovereignty. Indeed, CBN successfully promoted this odious propaganda over time, to induce the public perception that reserves in its custody are to be primarily dedicated to defending the Naira exchange rate in the currency market. This tragic faux pas is so distressing, because the process through which CBN accumulates it's so called "dollar reserves", is itself a self-destructive framework that deliberately instigates the poison of excess money supply which pressurizes the Naira exchange rate against the dollar, even when forex earnings ironically grossly exceed budget expectations.
Nonetheless, we must ask, the question, what business CBN operates to earn its billions of dollar reserves? Instructively, these reserves, are consolidated whenever CBN captures the nation's crude oil dollar revenue and thereafter proceeds to freshly create and directly substitute Naira allocations to the three tiers of government. Consequently, any increase in foreign exchange revenue from fortuitously higher crude price and output, would inadvertently create market distortions and become burdensome when Naira allocations are substituted for the distributable dollar denominated revenue. Invariably, the resultant huge injection of Naira values, precipitates a disenabling market paradigm with the defining feature of too much Naira supply persistently chasing rations of dollars which invariably induce the oppressive prospect of a weaker Naira exchange rate, while the same excess Naira supply also track, relatively less supply of goods and services, to further fuel inflation and reduce consumer demand.
Evidently, the process of infusing our export crude revenue into the economy ironically expands the CBN's cache of dollar reserves from which it regularly auctions dollar rations in a Naira surfeit market; consequently, the Naira exchange rate has become a product of monopolistic price setting with Central Bank's supply of over 80 percent of the dollars traded on foreign exchange market.
Worse still, in the guise of defending the Naira exchange rate, the CBN's dollar auctions, ironically ultimately favors the highest Naira bids against the dollar and this process therefore further pressurizes the Naira exchange rate to fall.
Ultimately, we must recognise that paltry annual budgets below N10Tn will never be adequate to transform an economy with annual potential productive activity of over $1Tn (N200Tn). Instructively, however, best practice inflation rates below two percent, together with below 6 percent interest rates for real sector borrowing with supportive fiscal policies, will make rapid economic transformation and diversification possible. Consequently, rather than embracing bloated budgets with increasing debt accumulation, Buhari will be better advised to recognise the necessity of the critical role of favorable monetary indices in his plans to positively change our lives.
SAVE THE NAIRA,SAVE NIGERIANS!!