Buhari, CBN And The Naira | Independent Newspapers Limited
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Buhari, CBN And The Naira

Posted: Jul 14, 2015 at 4:04 am   /   by   /   comments (0)

At the advent of the Fourth Republic in 1999, the Naira official exchange rate against the US Dollar was about N82.50 to $1.00. Between year 2000 and 2001, there were a trajectory of state financial matters that resulted in petroleum products price hike and the introduction of the so-called ‘N18,000 Living Wage.’

With that minimum wage, the least paid Nigerian then – at least in the public sector – earned the equivalent of $220.00 per month as salary. But as at the time the Jonathan administration left office on May 29, 2015, with the minimum wage still standing as it were in 2001, the Naira has been badly devalued that it is exchanging for N230.00 today. The implication is that over the years, under Okonjo-Iweala’s watch, a Nigerian on that minimum wage has become 300 times poorer than he was then, as the N18,000.00 can only exchange for about $75.00 now.

There is no denying the fact that poverty pervades the land. Yet, we were told by Okonjo-Iweala and her economy management team that the economy was growing, even beyond bounds. Right in the face of this, industries were shutting down before our very eyes, with an unprecedented unemployment rate. Just as well, the coordinating minister of the economy and her socio-economic engineers bamboozled us with the economy rebasing theory and some harrowing statistics; Nigeria is now worth $520.00billion in Gross Domestic Product (GDP), the largest in Africa, and several hundred thousands of jobs created quarterly.

However, a street Poet keeps reviewing the government’s claim and in utter disbelief shakes his head and wonders aloud: “Does this really adds up?” The Key Performance Indicators (KPI) of the Nigerian economy point to the contrary. He knows that something is wrong and shouts atop his voice but nobody listens. Madam Minister avoided him like a plague. The Poet does realize though, that she might, after all, not be a patriot as she negotiated and paid herself in Dollar instead of the Naira. He swear that madam is only an agent of entrenched interests that want to keep Nigerians perpetually poor; the entrenched interests he lists as the Bretton Woods Institutions – IMF and the World Bank – the Central Banks of Nigeria (CBN) and the Nigerian banks.

“Keeping the Naira weak is a sure way of making us poor,” the Poet says. He is quick to tell you that the primary responsibility of the apex bank is to maintain price stability, control the cost of funds, and manage the currency. In these charges, the CBN, no doubt, has failed. So the economy became so bastardised that with industries closing shop, we are now nothing but only a consumer nation.

Pained, our Poet adds; “The economy managers, do not see the common sense in what the western world do in the management of their economy, wherein the cost of fund is as low as 2% and at a high of 6% and bank work the hard way to make profits through financing of the real sector of the economy – manufacturing. Whereas in Nigeria the cost of funds is as high as between 25% and 35%, including all manner of charges like legal and administrative; and they expect investors to be able to make returns therefrom. But the Nigerian banks do not care a hoot because they have a cheap source of making profits with or without the real sector, ably aided and abetted by the CBN.”

How? The CBN pays as much as 17% interest on its ‘treasury bills’ in the name of mopping up excess liquidity from the economy. Rather than take risk financing the real sector, the banks resort to the risk free investment, with guaranteed profit, that is available in treasury bills. The CBN pays as much as between N300billion and N600billion in interest on treasury bills annually. It makes better business sense for the banks to look onto the CBN for this ‘nectared deal’ and rake in mouth watering profits at the end of the day. The interpretation of that is that the CBN borrows idle funds from the banks, which it will not use, at that scandalous rate.

But could there not be a better way of managing this excess liquidity, which some economists are beginning to suspect is ridden in fraud like fuel subsidy? The free fall in the value of the Naira stem from CBN’s deliberate creation of this excess liquidity monster; and if President Muhammadu Buhari must move Nigeria forward, then this is one issue he must tackle head-on. For, a key way of rebounding the economy is to ensure a strong exchange rate and price stability.

We do know that the fiscal policy that substitutes our Dollar earnings from crude oil export with Naira at the monthly federation account sharing among the tiers of government is responsible for excess liquidity in the market. By printing the Naira equivalent for sharing, the CBN deliberating puts so much Naira into the economy as well as put the currency under pressure against the Dollar and other international currencies; thereby making the Naira pursue the few Dollar that is altogether rationed by the same CBN. So in one fell swoop the CBN creates excess liquidity on the one hand, and weakens the Naira on the other.

Much as the street Poet has campaigned, his proffered solution is an answer to the twin issues of excess liquidity and the falling value of the Naira; share the monthly allocation in Dollar instruments, pronto.  With that there will be no issue of excess liquidity and the Dollar instruments will now pursue the Naira, which certainly gives it (Naira) a rebound.  But one is aware that because of the inherent fraud in the excess liquidity management, the CBN has been resisting the campaign for a reversal of the policy. The ‘business media,’ it is speculated has been seriously compromised in this regard. Buhari must, therefore, buy into the campaign, scrutinize the economic or fiscal policies of the CBN, and possibly restructure it, if he is to deliver on the change mantra. It makes sound judgment to say if the current policies have failed us over the years, discard with them now and try other ones. Buhari do this, please.