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

Likewise, it would be entirely appropriate for the National Assembly to assume its responsibilities by being more proactive in its statutory oversight of the CBN and other institutional actors…

Ohen news broke a few weeks ago that the country’s gross external reserve balance was significantly lower than reported figures, concerns grew about the well-being of the economy. The news was particularly troubling because the reserve balance at 15 billion dollars, contrary to the official claim of $36 billion, is barely enough for three months of imports. Worries about the economy were already high, to begin with. Weeks before, the Federal Ministry of Finance drew attention to the fact that the nation has spent far more on servicing its debt, at N1.9 trillion in the first four months of this year, than government revenue of N1.3 trillion naira during the same period. At more granular levels, rising domestic prices continue to push up the cost of living, even as inflation, which came in at 18.60% in June from 17.71% in May, is wiping out inflation. domestic savings. Decreased consumer spending is forcing businesses to reduce activity levels – and in the process pushing up unemployment rates even further, where the National Bureau of Statistics previously recorded 33.3%.

Of course, these signals from the main economic indices go against the fundamentals of the economy. At around $445 billion, the size of the national economy more than supports its entire stock of debt. However, with a tax-to-GDP ratio of around 8%, it’s easy to see how a debt-to-GDP ratio of 23.27% could start to hurt. Yet these numbers only tell part of the story of the mismanagement of the economy over the past eight years. The country’s debt figures, for example, do not include the estimated N19 trillion naira that the federal government has borrowed from the Central Bank of Nigeria (CBN).

This line of credit is important. Not because it breaks national laws, which unfortunately it does. Or because it may be directly responsible for the rise in domestic prices. Or because the cut in domestic interest rates that the CBN imposed on the economy to help the federal government meet the obligations arising from this debt is implicated in the massive downward pressure on the naira. Nor because in support of its artificial low interest rate regime, the CBN has mutilated the regulatory environment of what it calls our national money banks, particularly through its haphazard cash reserve ratio requirements. .

Beyond all this, so-called heterodoxy has seen fiscal and monetary authorities blurring clearly delineated lines of responsibility and mixing their economic metaphors – a quixotic, but clearly failed, assault on the bulwarks of orthodox economics. The opacity on which this process thrived was perhaps aided and abetted by the CBN’s failure to publish its annual reports and accounts since 2014. are shown at work. For example, the requirement that the Governor of the Central Bank of Nigeria must appear before the National Assembly in biannual hearings “to make an official report and presentation on the activities of the bank and the performance of the economy “has so far been widely observed in the breach. It is indeed a failure on the part of the National Assembly and its various commissions responsible for controlling the CBN, which could have prevented it. There are few interpretations of CBN’s enabling statute clause that imagine this as a process that should be conducted in rooms filled with smoke and mirrors.

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

So many questions about the management of monetary policy. At what interest rate is the approximately N19 trillion Federal Government loan actually being repaid? Since the CBN’s enabling law prohibits the reported size of outstanding loans, how does the apex bank take this into account? What is the nature and size of currency swaps that the CBN has entered into with foreign and local banks? Since these swaps encumber (ie limit the share available for CBN intervention in the foreign exchange market), what is the “unencumbered share” of the country’s gross external reserves? All this before concerns were raised over the implications for the Treasury of the transformation of the Nigerian National Petroleum Corporation (NNPC) into a company governed by the Companies and Related Matters Act 2021 (CAMA).

Orthodox economics advocates having information readily available to all participants in a market if economies are to function well. We don’t know what the new non-orthodoxy favored by the Buhari administration thinks about it, but as the numbers on the economy show, it’s not working. These issues also raise existential questions about whether those responsible know what they are doing or whether blind loyalties and personal ambition led them to dutifully lead Nigeria to the precipice of financial ruin.

PREMIUM TIMES believes that if Nigeria is to take a breather and pull itself out of the fiscal cliff in which it currently finds itself precariously, one solution – besides increasing productivity, the tax base and the diversification of the economy – would be for the country to take very deliberate action to recover the $17 billion owed to it from unreported crude oil revenues by some international oil companies between 2011 and 2014.

It’s been a concern since 2017, when a House of Representatives ad hoc committee that investigated the oil theft claimed it had bills of lading and other documentary evidence of crude sales to prove the theft. ‘affair. It was robbery confirmed by the Attorney General and Minister of Justice who was at the investigative hearing. Unfortunately, the federal government has not yet recovered the money. It is time to be more decisive on this recovery. Had the $17 billion been recovered, Nigeria might not have indulged in the current borrowing spree that has worsened its fiscal situation.

Likewise, it would be entirely appropriate for the National Assembly to assume its responsibilities by being more proactive in its statutory oversight of the CBN and other institutional actors whose actions or otherwise have an impact on fiscal health and well-being. economy of the country. Continued inaction by this body could ultimately tip Nigeria into a hopeless situation, which would be extremely regrettable.

Shirlene J. Manley