The extra-legal, or in fact illegal, funding of the government by the Central Bank of Nigeria (CBN) is not only threatening the economic growth of the country, it is portraying the country as a lawless country; one that cannot be relied upon to uphold its own laws or to conform to regionally agreed best practices.
The norm for financing of the government budget deficit by the central bank is capped at 5 percent of revenue, according to the CBN Act of 2007 and the Economic Community of West African States (ECOWAS).
Doyin Salami, an erstwhile member of the Monetary Policy Committee (MPC) of the CBN raised the alarm about the illegal funding of the government by the apex bank in July 2017, likening the CBN to a “piggy-bank” of the federal government.
The claim of the CBN on the federal government (consisting of overdrafts, treasury bills, converted bonds and other such lending) surged from N922 billion in 2014 to a whopping N8.12 trillion in 2018, according to data obtained from the CBN’s statistical bulletin. A 780 percent increase in three years, and over 22 or 23 times over the limit. In simple English, what the CBN has been doing is illegally printing money for the government and mopping up the money in supply to control inflation.
Of course, the CBN governor tried to explain away the illegality claiming the apex bank was only lending against the federal government’s deposits in its Treasury Single Account (TSA). But the funds in the TSA strictly do not belong to the government wholesale.
At the root of the crisis is government’s inability to generate revenue to meet its growing expenditure since the decline in oil revenue. Hence it resorted to wanton borrowings internally and externally to meet even its recurrent expenditure. The situation is now so bad that it’s official debt-to-revenue service is put at 70 percent i.e. for every 100 naira earned, government spends 70 naira on servicing debt.
Even if those figures are being disputed, analysts point out that the government has cleverly excluded some debt items from its computations. If these are taken into consideration the ratio may be in the region of 90 percent.
In effect, Nigeria is at the brink of a fiscal crisis and a debt default unless the price of oil miraculously recovers. This much was confirmed by the presidency this week when Garba Shehu warned in a press release that “it would appear that the country might be heading for a fiscal crisis if urgent steps are not taken to halt the negative trends in target setting and target realisation in tax revenue.
Rather than think of a lasting solution to raise revenues, the government is taking the easiest way out by ordering the CBN to print more and more money illegally to continue to maintain a semblance of normalcy until the cookie finally crumbles like it has in Zimbabwe and Venezuela.
That the central bank has no real independence and is being hopelessly controlled and manipulated by politicians, despite what the law books says, is a greater damage to the country that. Investors and the market generally frown upon political interferences with monetary policy decisions. This overly cosy relationship between the CBN and the federal government isn’t lost on the international community either.
The CBN governor must realise he has a sacred duty to defend the integrity of such a critical national institution; history will judge him harshly if he fails to and jeopardises the collective economic wellbeing of the nation.