BUHARI :Save The Naira And Save Nigerians

Muhamadu Buhari’s ouster from power in

1985 clearly attracted jubilations in several quarters, particularly from those who decried the iron fisted enforcement of social discipline; but three decades later, he was, inexplicably, swept back to power, in an infectious carnival-mode campaign, as the arrow head of the change, Nigeria urgently requires to rechart its trajectory and restore hope for a better life for its citizens.

Despite his advanced age, there is clearly no doubt about his passion and commitment to the unfinished business of building a country that we can all proudly call our own. President Mohamadu Buhari is, expectedly, constitutionally empowered to manage our economy for the greater good of more Nigerians by adopting best practice fiscal and monetary strategies to achieve this purpose.

Instructively, best practice management of fiscal and monetary instruments will transform a ‘resourceless’ landscape like SINGAPORE and JAPAN into stupendously prosperous communities, while misalignment of the same strategic instruments could degrade the owners of a naturally well endowed, resource rich country like Nigeria, into impoverished and disadvantaged specie of human kind.

Curiously, there appears to be a discomforting inverse correlation of deepening poverty, existing simultaneously with reserves which are consistently in excess of $30bn in an economy that remains eternally awash with embarrassingly surplus spending values.

 So, what would Buhari do to radically reinvent his administration’s fiscal and monetary strategies, so as to turn around and boost the efficacy and yield of positive economic and social dividends.

Recently, Vice President Osinbajo suggested, at a retreat for ministers-designate in Abuja that allocation for capital expenditure will be increased to about N2Tn in the proposed N7-8Trillion 2016 budget. Clearly, even if the projected $10bn capital vote is judiciously applied, the impact will still be insignificant, when compared with the speculated immediate infrastructural deficit of well over $100bn!

Furthermore, Vice President Osinbajo has also suggested that with depleting oil revenue, the over 70% projected increase in the 2016 budget, would be funded with additional borrowing while the National debt will require increased debt service charges of almost N1Tn ($5bn) or 12.5% of total budget. It is nonetheless, inexplicable, and worrisome that Nigeria’s total debt is currently in excess of $60bn, in place of the earlier widely condemned $30bn that elicited so much public consternation when $18bn was controversially fleeced from our pockets by overseas creditors, ten years ago.

Consequently, this experience, advises that we should be wary of external loans denominated in foreign exchange, especially, when the Nigerian money market still remains interminably awash with hundreds of billions of ironically idle funds that can be marshalled for investment in agriculture, infrastructure and human capacity building to drive inclusive growth.

It is also becoming increasingly clear that the present Administration’s selective sectoral support may not be too different from the standard process of offloading hundreds of billions of intervention funds into a money market that is perennially suffocated by a burden of surplus cash.

It is instructive, for example, that despite several special provisions to the Textiles and Aviation sub-sectors and the special allocations for the enhancement of Agricultural value chain by previous administrations, remarkable success has so far remained elusive.

In the event of these serial failures of fiscal management, Buhari may have to rely primarily on the efficacy of monetary strategies to successfully turn around the economy. Curiously, however, the responsibility for designing and implementing sensible and appropriate monetary policies, constitutionally resides with the Central Bank of Nigeria and its Monetary Policy Committee rather than the President.

Godwin E;mefiele

Thus, ‘If the CBN and the MPC successfully manage Money supply effectively, inflation rate will fall to best practice levels below 2%; with such outcome, purchasing power of all income values will become preserved to sustain healthy consumer demand which will in-turn stimulate further investment and increase job opportunities.

Conversely, consistently faulty management of money supply will trigger unrestrained inflation which will distort governments’ budget projections, impoverish our people, particularly pensioners, and make the realisation of forward plans a major challenge.

Additionally, best practice management of money supply will similarly facilitate single digit interest rates that would be less oppressive and less restraining to investments in all sectors of the economy; indeed, critical sectors, such as agriculture, food processing and education could attract 0-2% interest rates, as applicable, for example, in Japan, to encourage active private sector participation.

Incidentally, the CBN’s MPC decided at its 104th meeting in Abuja last week to reduce its Benchmark interest rate (which sets the pace for domestic bank lending rates) from 13 to 11%. 

Regrettably, if the erstwhile 13% policy rate induced commercial lending rates between 23-27%, then the new 11% benchmark may only marginally bring down market rates to about 20%, instead of the more appropriate and supportive single digit rates required to truly encourage new investments, economic diversification and job creation.

Furthermore, in its attempt to inject liquidity into the banking system, CBN’s MPC lately also decided to reduce the cash reserve commercial banks must hold to 20% from 25%. Evidently, even though this decision may appear progressive, it is clearly misguided and counterproductive in a money market which is perennially burdened by excess liquidity, which has to be constantly mopped up by CBN by borrowing and farcically keeping idle the proceeds of such loans, despite the attendant high interest rates which are not consonant with sovereign risk free borrowings.

Additionally, appropriate management of Naira supply vis-a-vis other foreign currencies, would also inevitably guarantee a stronger Naira market value; which will make the local currency, to remain attractive as a store of value, rather than suffer rejection like a street urchin.

 Instructively, our recent history of unrestrained Naira liquidity has continued to pummel the Naira exchange rate, paradoxically, even when CBN’s reserves steadily climbed as high as $60bn.

Thus, Buhari must feel helpless, like earlier Presidents before him, that the enshrined autonomy of the CBN and its Monetary Policy Committee for ensuring price stability, clearly restricts him from breaching CBN’s territory on monetary policy management. 

In recognition of the enormous powers and pervasive influence of a Central Bank in every economy, one of the illustrious Pioneers of the template for modern banking, a certain Mayer Rothschild, insightfully observed as follows in 1790:

“Give me control of a nation’s money supply, and I care not who makes it’s laws.” Thus, inspite of Buhari’s undenied passion for positive economic and social change, not even his best efforts and commitments nor the additional capacity of an eminent cabinet will unseal the failure of this administration, if the CBN and MPC continue to fumble with the management of money supply.