Economy: Actualise double digit growth rate
The Central Bank of Nigeria, CBN’s Monetary Policy Committee, now meeting, should take steps to actualize its explicit charge. The 2017-19 Medium Term Expenditure Framework and Fiscal Strategy Paper released in August 2016 revealed that there was in the offing a growth plan which, upon implementation, “may significantly enhance the growth trajectory of the economy over the medium term closer to the double digit growth rate which the economy actually requires.”
The implication: By growing the economy, for instance, at the average rate of 10 per cent over a medium term four-year plan period amid the country’s population growth rate of 2.8 per cent, per capital income would increase at an average of 7.2 per cent annually, leap by 32 per cent at the end of the plan period and double in a decade. At the country’s present economic level, under a good and well implemented plan, the economy would exit economic recession in the first year of the plan and attain incremental double digit growth rates in the second and subsequent years. By contrast, the Economic Recovery and Growth Plan (ERGP) 2017-20 now being implemented projects a hobbled annual average economic expansion of 4.6 per cent. Therefore, ERGP would only increase per capita income at an annual rate of 1.8 per cent, thereby making the recession-weakened 2016 per capita income level to move slightly by 7.4 per cent at the end of the plan period and double, ceteris paribus, in 40 years. But incredibly, the ERGP touts that scenario “is the only viable option if Nigeria is to restore its economy to a path of sustainable and inclusive growth, create sufficient jobs to reduce unemployment and poverty, improve social inclusion, and remain on course to achieve international development targets…”
Quite false! The cheerless ERGP prognosis reflects continued improper management of the resources that are and will be available to the country. For simplicity’s sake, Nigeria’s economic good fortune remains the fact that the yearly appropriated government revenue basket meant for settling mainly naira-denominated commitments, contains (1) realised non-oil tax naira receipts (these are by definition non-inflationary), (2) deficit financing below 3 per cent of GDP (fiscal deficit averages 1.6 per cent under ERGP) that should guarantee inflation within the safe bracket of 0-3 per cent, and (3) non-legal tender forex proceeds from oil exports that are inflation-neutral. Thus the physical currency content of the revenue basket has insufficient naira amounts. So by converting via the forex market the oil proceeds to non-inflationary naira sums within the existing money supply volume, the inflation prospect would still be within the safe bracket of 0-3 per cent.
That outcome permits the CBN to set the monetary policy rate a little above the inflation rate which makes for lending rates to settle within the internationally competitive 5-7 per cent band across the board. Therefore, what is required of the CBN is to vigilantly limit bank credit volume to the level that is consistent with maintaining the safe 0-3 percent inflation bracket. Nigeria’s mixed economy should depend on massive amounts of cheap bank credit to the private sector for sustainable growth and development rather than ERGP’s misguided reliance more or less solely on meagre government revenues.
Ruefully, Nigeria’s self-created economic misfortune is the prevalent opposite excessive fiscal deficits which account for problems such as excess liquidity, high inflation (the projected average under ERGP is 12.8 percent), accumulated mopped and sterilized (not invested) excess liquidity-based national domestic debt already requiring 66 percent of FG revenue to service, high monetary policy rate that begets extreme bank lending rates to the detriment of the productive sectors, non-inclusive growth, and so on. The withholding of Federation Account dollar allocations by the CBN and substitution in their stead of unappropriated apex bank deficit financing are to be blame.
Apparently cognizant of the inappropriateness of withholding the FA dollar allocations, the CBN came up with the Strategic Naira Agenda in August 2007, which set 1/9/2007 for takeoff of the proper conversion of FA dollar allocations to non-inflationary naira revenue, sought to redenominate the naira and proposed accession to IMF Article IV Consultation. The redenomination plan, which had merely cosmetic value, was officially rejected while deafening silence relayed the abortion of the need to effect proper conversion of FA oil proceeds. It is the patriotic duty as well as the statutory mandate of the CBN along with the MPC to ensure implementation of any measure that promotes national economic progress. The 2017 IMF Article IV Consultation concluded on 29/3/2017 listed the deepening economic difficulties, which will only be overcome by transacting Nigeria’s total export earnings (from oil exports, non-oil exports, remittances from Nigerians in the Diaspora to even external loans) in a single forex market.
Fortuitously, some actions that led to CBN’s baneful direct involvement in primary selling of forex (it is needless in a single forex market) were related by an erstwhile ICAN President of the Institute of Chartered Accountants of Nigeria, ICAN, who became Minister of Finance under Abacha at the 57th ICAN induction ceremony which held on 11/5/2016. He was part of the duo that produced the Foreign Exchange(Monitoring and Miscellaneous Provisions) Decree 1995 which (in his words) “reintroduced foreign currency domiciliary accounts”. This decree is responsible for multiple currency practices which (a) lead to multiple exchange rates, (b)make the domestic currency technically and permanently overvalued, (c) promote intense currency trading and profiteering at the expense of domestic production. Yet, this decree (also fraudulently dubbed Act) is an invalid law because it is in conflict with and should therefore yield ground to the Nigerian Constitution and CBN Act which enshrine a single national currency. A dutiful CBN should have repudiated outright the deleterious multiple currency intrusion. In order to deny multiple currency malpractitioners any fatuous legal pretext, the 1995 forex decree should be weeded out by means of a presidential executive order.
Meanwhile, the CBN and MPC should be directed to fashion out clear guidelines for operating Nigeria’s single forex market system. There is need for collaboration among the ministries. The Ministries of Finance and Budget and National Planning should produce a semi-annual addendum to the RGP or the Federal Budget that contains a comprehensive list of eligible imports as a basis of genuine forex demand. Given the national need-based demand for forex and forex supply that pools the country’s total broadly defined forex earnings, there will evolve in less than six months of the operation of the single forex market daily weighted naira exchange rate, which will show the 2017 Appropriation exchange rate as undervaluing the national currency. During the journey to the single forex exchange rate, all foreign currencies being kept in nooks and crevices all over the country would swamp the single forex market to be exchanged for naira funds. The exhilarating news: The national interest will be well served by holding on to an undervalued (Appropriation) naira exchange rate for as long as necessary.
So Nigeria’s economy can be easily salvaged that way. But in the event appropriate steps towards installing the beneficial single forex market naira exchange rate are arrogantly not taken before the July 2017 MPC meeting while the generality of Nigerians suffers unbearable economic pain, the CBN leadership and all members of the MPC should quit or be relieved of its position.