In a recent discussion with some media practitioners, I ‘innocently’ asked the innocuous question of who actually owns the reported foreign reserve balance of about $27.8bn? Expectedly, the response was a spontaneous chorus of “Nigeria of course”! But, then I quickly reminded my audience of an incidence in far away China just about three years ago, when former President Jonathan and Co-ordinating Minister of the Economy, Ngozi Okonjo Iweala, visited Beijing with the prime objective of seeking a $1.5bn ‘soft’ loan, to IMPROVE our decayed transport infrastructure.
Incidentally, Lamido Sanusi, the incumbent Governor of CBN was also in President Jonathan’s delegation, albeit, apparently, for a different purpose. Indeed, in response to questions from journalists, Sanusi noted that, he was seeking to diversify CBN’s foreign currency reserves away from dollar holdings, and the Chinese Yuan was consequently being considered as a possible option. In essence, CBN would exchange part of its existing dollar reserves for Yuan. Thus, in farcical twist, Chinese Bankers who exchange their Yuan for Sanusi’s dollars, could also turn around and offer the same dollars, plus additional cost of borrowing to Jonathan’s delegation; in such event, Nigerians would have been sold a dummy, which will, inexplicably, still be celebrated, as a testimony of Nigeria’s credit worthiness!
Surely, it would be totally inappropriate, for Jonathan’s delegation, to have traversed the world in search of dollar loans, when our own CBN is equally in possession of idle dollar reserves which earn minimal or nil returns. Ultimately after the preceeding narrative, I again asked my audience, about the ownership of the present $28bn reserves? Not surprisingly, this time, everyone chorused something to the effect that “ the CBN obviously owns the reserves”. However, news of President Buhari’s imminent visit to China in search of a $5bn foreign loan, despite CBN’s presents custody of almost $30bn, largely idle reserves, clearly evokes memories of the embarrassment of the Jonathan/Okonjo Iweala/Sanusi earlier misadventure in China in 2013. Surely, it would be more responsible management, with less risk to our sovereignty to borrow $5bn directly from our own CBN, than to expose the nation to increasing debt accumulation, at a time when we already require up to 35kobo from every Naira income earned to service existing debt annually.
Surely, It is clearly irresponsible to compulsively seek additional loans (whether domestic or external) without first shedding the ‘excess fat’, mischievously, deliberately couched in the 2016 budget. Indeed, President Buhari’s patriotic concern that we do not stumble into another ignoble debt trap, should have advised against further borrowing until a thorough audit of ongoing capital projects have been completed, to determine their viability and potential for positive social and economic impact. Indeed, the President’s men should have meticulously sieved the wheat from the chaff, with these projects and saved the Nation, the agony of losing hundreds of billions of Naira already spent on projects which are then simply abandoned for political or self serving reasons. Similarly, it is also pertinent to interrogate why the sustenance of an unwieldy deficit and borrowing plan in the 2016 budget remains sacrosanct, when indeed, the projected revenue shortfall could have been funded from non debt sources, such as the elimination of the alleged fraudulent components of the budget and the capture of the significant revenue accruals from loot so far recovered from corrupt public servants. So who are the ‘smart’ civil servants who sold Buhari, the dummy of the highest ever budget deficit, despite the stark reality of dwindling revenue?
Furthermore, what advised the decision to borrow over a third of the budget rather than to responsibly, cut our coat according to our cloth, so as not to compound our already oppressive debt burden, especially when additional borrowing may again become imperative to sustain expenditure in 2017, if very low crude oil prices persist. Furthermore, if Buhari’s government must borrow from the domestic market, why aren’t such loans, obtained with minimal or nil cost from the trillions of idle Naira deposits, that CBN continuously borrows and warehouses as sterile funds to reduce the burden of suffocating Naira spending value in the system, despite the inordinate cost of such counterproductive loan accumulation. Similarly, the CBN’s relatively substantial dollar reserves, which currently earn little or no yield, could also have provided a ready, and less risky source of raising the projected $4.5bn foreign loan required to partly fund the 2016 budget. Indeed, the residual reserves in CBN’s custody after such deduction, is still, i.e much more than the reserve base of most African Countries, with the exception of Algeria and South Africa. Nevertheless, the misguided public perception still persists, that it is more economically redeeming for billions of dollars to remain as idle reserves, with CBN rather than to apply same to fund budget deficits and also eliminate the risk of borrowing externally at shylock rates, that may eventually mortgage our sovereignty. Indeed, CBN has successfully promoted this odious propaganda over time, to engender public perception that reserves in CBN’s custody are to be primarily dedicated to defending the Naira exchange rate in the currency market.
This tragic faux pas is so distressing, because the process through which CBN accumulates it’s so called “dollar reserves”, is itself a disenabling framework that deliberately pressurizes the Naira exchange rate against the dollar, even when our forex earnings grossly exceed our expectations. Nonetheless, we must ask, the question, which business CBN operates to consolidate its billions of dollar reserves? Instructively, these reserves, are consolidated whenever CBN captures the nation’s crude oil dollar revenue and then proceeds to freshly create and directly substitute Naira allocations to the three tiers of government. Consequently, the higher the crude price and output, the bigger, also will also be the related forex earnings and the more burdensome inadvertently also, will be the volume and value of Naira substituted and injected into the money market to precipitate a disenabling market paradigm with the defining feature of too much Naira persistently chasing rations of dollars and relatively less supply of and goods and services, to invariably induce the disenabling prospect of a weaker Naira exchange rate and spiraling inflation. Invariably, therefore, fortuitously increasing dollar revenue, will translates to increasingly bloated, distortional and disenabling excess Naira liquidity, but this process ironically expands the cache of dollar reserves from which CBN regularly auctions dollar rations in a Naira surfeit market; ultimately the Naira exchange rate becomes a product of monopolistic price setting by the Central Bank, which also invariably unilaterally determines the Naira exchange rate. Worse still, in the guise of defending the Naira exchange rate, the CBN’s dollar auctions ultimately ironically favors the highest Naira bids against the dollar and therefore further depreciates the Naira.
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