Edo State Governor, Godwin Obaseki, has urged the Minister of Finance, Budget and National Planning, Zainab Ahmed, to rally Nigerians to save the tumbling economy, rather than playing the ostrich.
This was the governor’s counter-reaction to the denial by the minister that he lied about his claim that the Federal Government printed between N50 and N60 billion to share among the federating units in March.
In a statement signed by his media aide, Crusoe Osagie, the governor called for urgent steps to end the current monetary rascality to prevent the prevailing economic challenge from degenerating further.
“While we do not want to join issues with the Federal Ministry of Finance, we believe it is our duty to offer useful advice for the benefit of our country. The Minister should rally Nigerians to stem the obvious fiscal slide facing our country. Rather than play the ostrich, we urge the government to take urgent steps to end the current monetary rascality, to prevent the prevailing economic challenge from degenerating further.”
He added that the ‘Nigerian project’ should be approached with all sense of responsibility and commitment rather than playing to the gallery.
Ahmed had on Wednesday said the issue raised by the governor was very sad “because it is not a fact.”
The minister’s position contradicts an earlier position of the Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, in February 2021, when Fitch raised a similar concern, saying that unrestrained financing of government’s deficits with Ways and Means (W&M) was a source of economic instability.
Then, Emefiele had said the Central Bank would continue to fund the shortfalls “if the government cannot finance all its obligations. It behooves the central bank to offer support as a lender of last resort. It is unfair and very unfortunate that Fitch, which is known to be a first-class company, would hold such views on what we are doing,” Emefiele said.
Emefiele’s reaction came after it was disclosed by the Minister of Finance that in 2020 alone, the CBN printed ₦2.86 trillion without matching the funds with proprietary economic activities. This was revealed by Ahmed while presenting the approved 2021 budget.
CBN’s total gross Ways and Means loans to the Federal Government rose to as high as N13.8 trillion in the second half of 2020. The Ways and Means related loans are legal means by which the central bank lends money to the Federal Government to fund budget deficits. Typically, the government funds its deficits by either issuing bonds or drawing on multilateral loans. But sometimes this is not enough, meaning that it must turn to the apex bank to bridge the funding gap.
Worse, though, this has been the trend of events over the past years, a clear indication of this and the previous administration’s inability to diversify revenue streams. While previous administrations battled to reduce this trend, the present administration proves its commitment to finance its budget continually by any means available. Starting at ₦2.5 trillion in 2015, the funds rose to ₦11.7 trillion by the end of 2019. FG further printed an additional ₦2.86 trillion in 2020.
The CBN Act that guides the money regulator in its transactions with the government and the public, in Section 38, (1) and (2) states: Notwithstanding the provision in section 34 (d) of this Act, the Bank may grant temporary advances to the Federal Government regarding temporary deficiency of budget revenue at such interest rates as the Bank may determine. The total amount of such advances outstanding shall not at any time exceed five (%) percent of the previous year’s actual revenue of the Federal Government.
With the preceding, the CBN doesn’t have the authority to print money beyond 5% of FG revenue in 2019. Total revenue generated in 2019 was ₦4.12 trillion. Therefore, the total stipulated money printable by CBN should not exceed ₦206 billion (5% of revenue generated in 2019). However, the bank went ahead to print ₦2.86 trillion, accounting for 69.4% of generated revenue in 2019.
Analysts argue that with this CBN monetary policy, such amount of money being pumped into circulation without a corresponding increase in economic activities could spell dire consequences for inflation, private investment, the value of the naira, and citizens’ economic livelihood.
As Nigerians weigh in on the controversy, a development economist, Dr. Chiwuike Uba, yesterday, said the situation is worse than the governor painted it and that the extent of the challenge leaves the economy with sorrowful scars.
“We cannot continue to pretend about the state of Nigeria’s economy. Nigeria is borrowing to service part of the existing debts, because of dwindling revenues. In addition to a reduction in oil production/output, the price of oil is not steady; inflation and unemployment are at the rooftops; poverty, insecurity, and infrastructure deficits are increasing,” he lamented.
The economist expressed worry that the trust deficit for the government has further negative consequences for the dwindling revenues, as people are not willing to pay taxes anymore.
“The citizens do not trust the government anymore; hence, they are unwilling to pay taxes.”
Productivity is low while consumption is very high, the business environment is neither friendly to the existing businesses nor encourages new investments in the country. This, in turn, affects our balance of payments, trade balance, exchange rate, and external reserves,” he stressed.
Also, the rising fiscal imbalances are seriously challenging the government’s effort to achieve macroeconomic stability, Chairman of the Presidential Economic Advisory Council (PEAC), Dr. Doyin Salami, raised the alarm at a forum to assess the year’s economic outlook recently.
The imbalances, which include widening trade deficit, are sending the economy to a tailspin. But Uba said the challenges date back to 2015 but only got worse in recent times.
“Since 2015, Nigeria has not been able to achieve its budget revenue target. Therefore, the budget deficit increases with the CBN funding part of the deficit through W&M. Even when the Ministry of Finance has come out to deny the alleged printing of money to share for the state governments, there are signs that either the CBN is arbitrarily and illegally deploying the funds the CBN mobilised from banks through the cash reserve ratio (CRR) to fund government budget deficits and other interventions or the CBN is printing money to finance government’s activities through W&M.
“The alleged printing of money may not be unconnected to the continuing free fall of the local currency and the hyper-inflation the country is currently experiencing,” the economist, who has consulted for the World Bank and other international organisations, said.
Also speaking, Godwin Owoh, a professor of applied economics and debt management consultant, said it was unfortunate that politicians have suddenly come to terms with a challenge he identified years back. He warned that the country faces a more challenging future if urgent steps were not taken to address the challenges.
Owoh had called for a thorough currency census, saying there is high-level collusion to rob Nigerians of their future through deliberate action to rig the financial system. This, he said, “should be a concern to an average Nigerian.”