Following nearly two years of failed efforts to break through the fence of conditionalities for the release of multilateral loans being dangled by the IMF/World Bank and the European Union, the Finance Minister Kemi Adeosun, threw up her arms and confessed at the quarterly business forum held in July at the Aso Villa, “We cannot borrow any more; we just have to generate funds domestically enough to fund our budget.” She explained that the administration had considered using external loans in the short term because required funds could be raised more rapidly than through government’s medium term plan of mobilising increased revenue. The minister added that another reason for seeking external loans was the desire to deliver essential services in greater volume than could be carried out with the small size of the country’s annual budget whose largest chunk goes to salary payments. (We recall the additional argument that multilateral loans were cheaper than domestic loans.) The retraction of the minister’s declaration shortly after was an excuse, given in advance, because of the looming failure to meet the targets set in the Economic Recovery and Growth Plan (ERGP).
This newspaper hereby reaffirms its earlier position that the economy has the stamina to dispense with external budgetary support and to still out-perform the ERGP as proposed if (and only if) the four decades-long business-as-usual sabotage of the economy through implementation of inappropriate fiscal and monetary measures, does stop. The editorial gave sources of revenue being diverted elsewhere to the neglect of delivering essential services. But let it be stressed that the country has a mixed enterprise economic system. Government does not require gigantic budgets in order to create the conducive environment that facilitates participation by the private sector (which is at present more than 10 times the size of the public sector) in delivering basic projects and essential services.
Nonetheless, it is pertinent here for the minister to explain to Nigerians why the “small-sized budgets” omit the gargantuan proceeds that accrue from the difference between the FAAC exchange rate and the depreciated exchange rate at the auctions of withheld Federation Account dollar allocations. Light should be beamed on questions such as, (1) Are all the proceeds looted? (2) Is such wholesale looting the reason for the perpetuation of the auctions? (3) Does the Federal Ministry of Finance not breach the annual Appropriation Act when it gets the naira depreciated, nay, devalued in this manner thereby bleeding the economy? The auctions sabotage the national currency and thereby prevent efficient working of the economy. The baneful practice should therefore stop.
As if she had a premonition of the above questions, Adeosun at the business forum soft-pedalled the need “to plug all the stealing and all the waste” but blamed tax evasion by the Nigerian public for the low tax/GDP ratio, which in turn accounted for the small size of the national budgets and government’s incapacity to deliver basic projects. After expatiating by decrying Nigeria’s low tax to GDP ratio of six per cent for being far behind the sub-Saharan average of 17 per cent, Asia’s figure of 26 per cent and the score of 30-35 per cent for most of the emerging markets and advanced countries, Adeosun commended the administration’s efforts “to achieve economic prosperity by trying to bench-mark ourselves against more developed countries and address problems in a more fundamental sense.”
In truth, for purpose of comparison between two countries, tax/GDP ratios need to be adjusted mainly because the level of tax takings depends on earned incomes and individual country tax policies. There are economically prosperous tax havens and oil-rich countries that impose very little or no tax at all on the populace. Moreover, tax holiday and low tax level are part of package of incentives for luring and retaining investors to promote economic prosperity. In advanced countries, one strategy for combating economic recession is to reduce and refund taxes to enable businesses to produce and consumers to go on a buying spree. Thus, while tax evasion should not be condoned, the FGN is sabotaging full blast economic recovery by embarking on intense tax collection drive at a time the Nigerian economy is in recession or on the verge of emerging from it. Because IMF/World Bank and the European Union have ulterior motives, government should weigh the consequences of any advice emanating from them.
Clearly, the choice of tax/GDP ratio as benchmark indicator of economic prosperity is inappropriate. However, a useful indicator for gauging economic prosperity is the volume of bank credit as a proportion of GDP. This indicator points to the intensity of economic activity that in turn is dependent on the tripodal factors of low interest rate, low inflation and a realistic exchange rate that is stable. Does accessed credit volume matter? Yes! For instance, in the past five years or so, Nigeria’s Micro, Small and Medium Enterprises numbering anything from 17 million to 34 million have yet to fully utilise the CBN’s N220 billion Development Fund (that averages N6,470 per establishment) owing to unattractive interest rate of 9 per cent excluding padding. Such a meagre loan volume would not lift economic activity. And it has no tax value.
So, to pan to the clarifications sought from the minister above, the greatest form of economic sabotage committed by the Federal Government, the exclusive monetary authority and the biggest public spender, over the years is the refusal to discard withholding of Federation Account dollar allocations and thereby blocking the road to the tripodal factors. By the same token, the FGN jettisoned the realisation of CBN’s statutory object of guaranteeing price and monetary stability, which alone would prompt cheap bank credit and extensive private sector investment to raise domestic bank credit to GDP ratio. Result? In 2014, the full year before crude oil prices began to dive, World Bank data show domestic credit provided by the financial sector as a proportion of GDP stood at Nigeria (22), Malaysia (140), Japan (where central bank rate may be as low as 0.1 per cent and inflation for many years is low with occasional negative inflation or deflation) (374) and U.S.A. (253).
Apart from frustrating the tripodal factors, the withholding of FA dollar allocations since 1971 has left in its wake other abuses that have thoroughly sabotaged and distorted the economy. Real production has ceased to be the goal of profitable business undertaking. The poisoned harvest includes multiple currency practices (with deep-rooted dollarisation as offshoot) and custom-made fragmented forex windows for palming off the bulk of the withheld FA foreign exchange. Implication? One, there is absence of a single forex market to coalesce a realistic and stable exchange rate centred on the Appropriation Act (AA) exchange rate. The AA exchange rate is consistent with the managed float system and necessary in the country’s model of economic planning. The AA rate is the nearest to the idealistic freely floating exchange rate routinely given by IMF/WB as a conditionality. Yet, the so-called open Western economies do not operate a freely floating exchange rate system. The lack of a realistic and stable exchange rate breeds persistently under-performing economy. Now that government seeks to validate its proposed measures by using bench marks of advanced countries, the administration should name any prosperous countries that operate a confused forex market system similar to Nigeria’s method, which literally and idiomatically sabotages and shoots the country in the foot.
Two, the Buhari administration’s expressed intention to borrow $4 billion from the local debt market evidences the multiple currency practices. Shamefully, it connotes the co-existence of two monetary bodies. One body governed under the 1999 Constitution, has the naira as a national currency. Another body comprising cheaters and haters of Nigeria adopts as its currency the alien U.S. dollar and wangles its stock of dollars largely from withheld FA dollar allocations against Nigeria’s interest. This unwholesome origin of the domestic dollar debt market makes it an integral part of “all the stealing and all the waste” which the Finance Minister conveniently (or is it collusively?) downplayed at the business forum as noted earlier. Thus, in place of real production that boosts overall economic prosperity, the manifest avenues of making easy money have become multiple currency practices, dollarisation and domestic dollar debt market. Being unproductive practices that sabotage the economy, they should be stamped out.
Ordinarily, the country’s public and private sector forex earnings should flow directly to fund eligible imports while the surplus forex is kept as Federal Government-owned external reserves by the CBN. But in Nigeria’s upside-down forex arrangement, the external reserves have been confiscated by the apex bank. They are called CBN’s external reserves. The CBN acquires its external reserves through printing by fiat purported naira equivalent figures that catch the apex bank’s fancy.
The presence of two monetary entities technically means the Federal Government wittingly shares Nigeria’s sovereign responsibilities and independence with imposters. Under the Oath of Office of the President contained in the 1999 Constitution, to surrender sovereign functions or part thereof amounts to gross misconduct. Therefore, the NASS should urgently draw the attention of the President to the unconstitutional development, which has thoroughly undermined national economic advancement.
All in all, the numerous policies and measures, acts and practices of economic sabotage by the Federal Government (a few of which are highlighted above) should now cease. Towards that end, the Cabinet and Economic Management Team should without delay direct both the FAAC to share FA receipts in the very currencies the amounts accrue and the CBN to operate a Single Forex Market system in the manner repeatedly outlined by this newspaper.