Economy: Lend to rather than borrow from IMF

By Editorial Board   |   18 July 2017   |   4:16 am

International Monetary Fund

The Nigerian economy will attain Paris Club status (lender country to the International Monetary Fund, the alter ego of the World Bank) within 10 years if the country’s ample human, natural and financial resources are undeviatingly managed subject to economic best practice methods beginning from the implementation of the Federal 2017 Appropriation Act. Such a goal is consistent with the national economic objectives enshrined in Section 16 of the 1999 Constitution of the Federal Republic of Nigeria (as amended), which constitute the broad economic mandate guiding every federal administration. Also its pursuit will uplift the Economic Recovery and Growth Plan (ERGP) and remove permanently the factors that, starting from the abandonment of the Third National Development Plan (1975-80), doomed all national economic plans, programme and strategies.

Against the above prospect, however, the early steps taken by the present administration toward financing and implementing the ERGP are not reassuring. After a long delay in the NASS, the 2017 Federal Appropriation Act received what may be termed a conditional presidential assent. Thereupon, some international agencies initiated efforts towards implementing aspects of the ERGP concerning them.

For example, on the same date the budget was assented to, UNICEF Nigeria Country Office kicked off the campaign for its 2017 School Enrollment programme tagged “Education Matters… Every Nigerian Child Deserves to be in School.” Secondly, last month, the World Bank approved external loan of US$961 million for two programmes, namely, “Better Education Service Delivery for All” aimed at bringing out-of-school children into the classroom and the “Kaduna State Economic Transformation Programme for Results.”

However, earlier on 16/05/17, Acting President Yemi Osinbajo requested that the sum of $1.28 billion which the Seventh National Assembly, acting within its constitutional powers, had in 2013 excluded from the 2014-16 external borrowing plan to be re-inserted in the 2016-18 external borrowing plan. The amount of $1.28 billion is a World Bank/German/French loan (not a multi-agency donation or grant) intended for the Development Bank of Nigeria and Funding for Agricultural Finance in Nigeria (Phase II). Elsewhere there is a request for upfront approval of external loans totalling over $30 billion to be drawn over several years. Meanwhile, in apparent move to coerce NASS to give blanket approval to various proposed external loans, the European Union at the end of June deadpanned the end of further budgetary support for Nigeria.

That EU peremptory action more or less renders the ERGP, as proposed, stillborn. Lesson? The country should be on guard as the EU grandstanding move dredges up memories of the slave trade era, the partitioning of Africa, colonialism and the fraud-riddled external debt trap which Nigeria only exited in 2006 after paying a ransom of $12 billion to Western countries including being made to agree to implement injurious measures that are largely responsible for the present economic condition. In reality, Nigeria does not require external budgetary support beyond voluntary grants such as the UNICEF programme earlier noted. Therefore, the approved World Bank Loan should be left untouched while all other proposed external loans should be dumped for at least three major reasons.

One, the personnel, skills and material requirements for executing the intended programmes are available abundantly locally just as any needed naira funds are lying idle in the national kitty under misleading labels as will be shown soon. At the worst, a small volume of complementing imports (special skills inclusive) may be procured using a small fraction of the country’s export earnings. Two, external loans benefit the lending country more than the borrowing country. Experience shows that not less than 50 per cent of the planned external loans will be expended or tied to procuring superfluous imports such as foreign project executives and the services of foreign consultants. As the EU threat illustrates, the borrowing country loses its independence to act strictly in its national interest. And there is need to avoid another external debt trap and prevent situations like a foreign company insisting on assuming ownership of that part of Nigeria containing iron ores, the Ajaokuta Steel Complex, the railway with its right of way down to the dedicated seaport and the Aladja Steel Company to boot.

Three, the military regimes’ refusal since the demise of the Bretton Woods system of fixed exchange rate to allow Federation Account (FA) beneficiaries to properly convert dollar allocations in accordance with economic best practice constitutes the origin of the swelling river of “wasted generation” after generation of Nigerians. The vampirish looting of withheld FA dollar allocations and their replacement with apex bank deficit financing retarded the economy. The raging symptoms of economic retardation paved the way for the IMF/World Bank which, instead of repairing the economy, recommended measures to further compound the economic woes. As the economy tottered interminably, the Nigerian Economic Summit Group (NESG), a legacy of the Interim National Government, assumed the role of government’s principal economic policy maker. Yet, owing to the self-serving designs of IMF/World Bank and NESG, the high crude oil prices under the democratic dispensation, the brimming excess crude account and the record height of “CBN’s external reserves” during 2000-14 merely nursed a constantly underperforming economy with monotonically rising absolute poverty rate. Therefore, there is no justification for government to continue angling for external loans to support its budgets.

For the Muhammadu Buhari-led Cabinet and Economic Management Team, the way out of the severe economic difficulties is to take economic best practice fiscal and monetary steps without further delay. The required policies are in sync with provisions of the constitution and the enabling law of the apex bank and fall within Nigeria’s sovereign internal affairs thereby ruling out any possible interference from the international community. Two steps should be taken simultaneously.

Firstly, transmutation of excess liquidity (the bane of the economy) into national domestic debt is not in accord with economic best practice. Ordinarily, where excess liquidity occurs, the apex bank fixes appropriate cash and liquidity ratios while any remnant excess funds are cleared from the system at less than 0.1 percent interest charge. Therefore, the CBN should normalise the situation by fixing best practice interest or service charge of 0.1 per cent per annum on the sterilised (unutilised) national domestic debt (NDD), which stood at #11.971 trillion on 31/3/17, with effect from 12/6/17 when the 2017 Federal Appropriation Act came into effect. Consequently, (a) total NDD service cost in 2017 fiscal year will drop to #12 billion; (b) there will be revenue saving of #1.476 trillion on the provision of #1.488 trillion for NDD service; (c) the balance exceeds the projected additional government revenue of #800 billion under ERGP while the unutilised NDD stock will provide multiples of the required additional revenue for 15 years without further domestic borrowing by government; (d) funds in the TSA, non-oil receipts, independent revenues and loot recoveries constitute extra government revenue.

Secondly, Nigeria’s entire export earnings should serve the country.Thus all legitimate economic transactions including bank loans should be carried out and be denominated in best-practice constitutionally-recognised naira currency. Accordingly, to operate dollar domiciliary account represents unconstitutional multiple currency practice. So funds in such accounts should be converted to naira sums within a set short time frame. Broadly, therefore, all private sector export earnings including foreign loans and remittances by Nigerians in the Diaspora should be converted to naira funds within a set short time frame via best practice single forex market (SFM) where the central exchange rate is as contained in the Appropriation Act.

For FA beneficiaries, their respective CBN Account Statement certifying any dollar holdings should be transacted and converted in full or in part as and when desired in the SFM. Because the FA excess crude account restricts forex supply to the market, prematurely constricts government revenue and breaches the principle of the paradox of thrift, it should be discontinued. Forex transactions should attract a commission fixed by the apex bank that is payable by the seller and buyer to the intermediating bank. Reason? Banks do not own the forex passing through them but merely act as brokers. They should therefore not influence or increase forex price.

Demand for forex should be based on eligible list of imports containing, say, five categories reflecting their priority rating in the economy. In order to augment government revenue, a forex usage surcharge that rises with decreasing priority should be imposed and be added to the market-determined exchange rate. The traditional government takings from international trade remain in place.

The eligible import list is a tool for keeping forex demand below supply. The resulting surplus forex accretes to external reserves exclusively owned by the Federal Government. Upon the takeoff of the SFM, the so-called CBN’s external reserves should form part of government-owned reserves. The sovereign wealth fund should be financed from the external reserves. The irritant Ajaokuta arbitration penalty should be paid off over a negotiated long period of time from the external reserves.

Note importantly that the outlined humongous revenues accruing to government are interest-free except for the NDD that attracts 0.1 per cent whereas interest charges on external loans that have been rendered redundant are much higher. Also note the supreme economic benefit. The prospect of budget surpluses running into the foreseeable future guarantees a stable and realistic Appropriation Act exchange rate, inflation rate that fluctuates within the range of 0-3 per cent and lending rates (that are positive in real terms) of 5-7 per cent across the board. Such is the veritable conducive production environment in which domestic banks should finance private sector-led rapid economic expansion and accumulation of surplus wealth to the level at which Nigeria will afford to lend to the IMF/WB if they so desire within the next 10 years. Nigerians who patriotically dream that goal should be challenged to actualise the vision. They should be put in charge of managing the economy.

Hence, the Cabinet and Economic Management Team should shape up instead of portraying Nigeria as a banana republic and pawning further generations of Nigerians to foreign interests as slaves in the 21st century.




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