Nigeria: On the Fiscal Cliff: CBN and Nigeria’s External Reserves

Equally, it would be highly appropriate for the National Assembly to wake up to its responsibilities by being more proactive in its statutory oversight of CBN and other institutional actors…

When the news broke a few weeks ago that the balance on the nation’s gross external reserves was considerably below the advertised figures, concerns rose about the economy’s welfare. The news was particularly troubling because the balance on the reserves at $15 billion, contrary to the official claim of $36 billion, is barely enough for three months of imports. The concerns about the economy were already high, to begin with. Weeks before, the Federal Ministry of Finance drew attention to the fact that the nation spent far more servicing its debt, at N1.9 trillion in the first four months of this year, than government’s income of N1.3 trillion over the same period. At more granular levels, rising domestic prices continue to drive up living costs, even as inflation, which stood at 18.60 per cent in June as against 17.71 per cent in May, wipes out domestic savings. Thus diminished, consumer spending is forcing businesses to lower activity levels – and in the process push unemployment rates further up, from the National Bureau of Statistics earlier recorded 33.3 per cent.

Of course, these signals from the main economic indices run in the face of the economy’s fundamentals. At about $445 billion, the size of the domestic economy more than supports its entire debt stock. However, with a tax-to-GDP ratio of about 8 per cent, it is easy to see how a 23.27 per cent debt-to-GDP ratio could begin to hurt. Yet, these numbers only tell one part of the story of the economy’s mismanagement over the last eight years. The numbers on the nation’s debt, for instance, do not include the approximately N19 trillion that the Federal Government borrowed from the Central Bank of Nigeria (CBN).

This credit line matters. Not because it is in breach of the nation’s laws, which, unfortunately, it is. Or because it may be directly responsible for pushing domestic prices up. Or because the lower domestic interest rates that the CBN has forced on the economy in order to help the Federal Government meet the obligations arising from this debt are implicated in the massive downward pressure on the naira. Nor because in order to support its artificial low interest rate regime, the CBN has mangled the regulatory environment for what it refers to as our domestic money banks, especially through its random cash reserve ratio requirements.

Beyond all of these, the so-called heterodoxy has seen both the fiscal and monetary authorities blur clearly demarcated lines of responsibility and mix their economic metaphors – a quixotic, but clearly failed assault on the ramparts of orthodox economics. The opacity on which this process has thrived may have been aided and abetted by the CBN’s failure to publish its annual reports and accounts since 2014. But it could not have held if other arms of government showed up at work. For instance, the requirement that the Governor of the Central Bank of Nigeria appear before the National Assembly at semi-annual hearings “to make a formal report and presentation on the activities of the bank and the performance of the economy” has been thus far largely observed in the breach. This is definitely a failure on the part of the National Assembly and its various committees tasked with oversight of the CBN, which could have forestalled this. There are few interpretations of the clause in CBN’s enabling statute that imagine this as a process that ought to be conducted in rooms filled with smoke and mirrors.

… it would be highly appropriate for the National Assembly to wake up to its responsibilities by being more proactive in its statutory oversight of CBN and other institutional actors…

All of which leaves questions about the management of monetary policy. At what interest rate is the about N19 trillion loan of the Federal Government actually serviced? Given that the CBN’s enabling Act forbids the reported size of the outstanding lending, how is the apex bank accounting for this? What is the nature and size of the currency swaps that the CBN has entered into with foreign and local banks? Since these swaps encumber (that is limit the portion that is available for the CBN’s intervention in the foreign exchange market), what is the “unencumbered portion” of the nation’s gross external reserves? All of these are before concern is aired over the implications for the exchequer of the Nigerian National Petroleum Corporation’s (NNPC) transformation to a company governed by the Companies and Allied Matters Act (CAMA) 2021.

Orthodox economics is partisan to information being immediately available to all participants in a market, if economies are to function well. We do not know what the new unorthodoxy favoured by the Buhari administration thinks of these, but as is evident from the numbers on the economy, it is not working. These issues also raise existential questions about whether those in charge know what they are doing or whether blind loyalties and personal ambitions have led them to conscientiously lead Nigeria to the precipice of financial ruin.

PREMIUM TIMES believes that if Nigeria is to have a breather and be pulled back from the fiscal cliff at which it is precariously located at the moment, one way around this – besides increasing productivity, the tax base and diversifying the economy – would be for the country to take very deliberate steps towards the recovery of the $17 billion it is being owed from undeclared crude oil revenues by some international oil companies between 2011 and 2014.

This has been a subject of concern since 2017 when a House of Representatives ad hoc committee that probed oil theft affirmed that it had bills of lading and other documentary evidence of the crude sales to prove the case. It was brigandage the Attorney General and Minister of Justice who was at the investigative hearing confirmed. Sadly, the Federal Government is yet to recover the money. It is time to be more decisive about this recovery. If the $17 billion had been recovered, Nigeria might not have indulged in the present borrowing binge that has worsened its fiscal position.

Equally, it would be highly appropriate for the National Assembly to wake up to its responsibilities by being more proactive in its statutory oversight of CBN and other institutional actors whose actions or otherwise impact the fiscal health and economic wellbeing of the country. The further inaction of this body might ultimately enable the tipping of Nigeria into a basket case, which would be extremely unfortunate.


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