Sloppy devaluation in a deficit financing regime pushes the economy into recession 2

CBN’s mandate

The CBN Act mandates it to maintain stable prices and output growth.

Providing stable output growth at full-employment is the ultimate goal of any central banking system.

Although achieving these goals sometimes results in policy conflict, it is the responsibility of the CBN to find the right set of policy tools to achieve stable economic growth without inflation and unemployment.

From 2009-2014, monetary authorities had put a premium on foreign currency exchange stability and risk management to oblige merchant banks to have stronger balance sheets and good governance. The action ensured that financial intermediaries became financially healthier to support CBN’s drive towards the achievement of output growth and price stability.

That vision has not been articulated by the new monetary policy regime by re-directing its activities towards consumer and business lending. Policymakers have been compromised with such fiscal and monetary policy initiatives like the Excess Crude Account and Sovereign Wealth Fund, as the country continues to finance budget deficits year-in year-out by borrowing in the domestic and foreign markets for loanable funds.

Why did the CBN continue to underwrite long-term debt instruments as the country continued to accumulate excess revenue over planned spending budget? Also, why did Nigeria borrow to invest in infrastructure but chose to spend surplus revenue on consumption?

These questions and many more have shown lack of thoughtfulness and have endorsed confusion amongst elite economic policy makers, otherwise one can conclude that these have been deliberate policy schemes to keep the nation into continual debt to thwart development and, in the process, divert accumulated savings through exotic investment schemes as the Sovereign Wealth Fund, which most Nigerians have never seen and would never likely see its balance sheet.

The pool for loanable funds comes from public and private savings. It is from this market for loanable funds that businesses and households borrow to finance purchases for new factory buildings, equipment, houses, cars, and durable consumer products. Nigeria has no public saving because policymakers have chosen to share the surplus for today’s consumption.

How can this be changed for a better tomorrow in planning for economic development? The current political leadership of President Buhari can set the course for a new dawn.

Conclusion

“… we have manoeuvred ourselves into a mono-economy which led to the collapse we are seeing now.” There is overwhelming evidence to support President Buhari’s statement above. A glance in memory lane has revealed astonishing statistics that bear witness to the rot in Nigeria’s economic management.

In 1960, the share of agriculture to Nigeria’s GDP, which is the value of goods and services, was 67.0% and crude oil sales was only 0.6%. In 1980, the share of agriculture to Nigeria’s GDP dropped down to 30.8%, while crude oil sales rose to 22.0%. In 2006, agriculture’s share of GDP dropped further to 24.6%, while crude oil sales increased to 51.1%. This trend has continued to 2016 as the country exports less cash crops and processing for value addition has diminished as well.

President Buhari’s comments and questions are thought provoking for all free-thinking Nigerians in responsible positions of national interest, and who have the economic interest of Nigeria at heart.

From 2005 to 2015, Nigeria experienced one of the greatest economic expansions of all times in its history. The Nigerian stock market boom produced billionaires, while some ill-advised investors and speculators lost their precious savings due to the crash of 2009.

While all of these were going on, crude oil prices soared. Nigeria took in more in revenues year-in year-out than was budgeted to spend, however, deficit financing continued unabated as if the money taken in from crude oil sales was not real.

What’s more, looting of public wealth continued unchecked and the economy began to crumble as the real sector of the economy was completely ignored. Nigeria has walked herself into a deep depression and unless President Buhari acts now to turn around the tide, the politics of the economic depression shall continue to echo on the streets and subsequently at the polls in 2019.