THE remarkables note about the under-implementation of the 2013 Budget is that it follows a three decades-long pattern. Government has adopted fiscal consolidation policy despite the longstanding high unemployment rate and poverty incidence of over 70 per cent. It maintains the excess crude account (ECA) while both the national domestic debt that is not invested soars and multilateral loans are contracted in order to legitimate continued foreign interference. All these insult a nation’s intelligence.
The familiar disagreements between the executive and legislative arms of government over budget oil price benchmark followed by engineered reduction in projected oil output, the wrangling over constituency projects as well as delayed budget presentation, tardy passage and reluctant presidential assent are all intended to provide ready excuses for the assured national economic under-performance which the inbuilt mechanisms would produce. Surely, the schemed under-funding of the 2013 Budget that is aimed at keeping budget expenditure within range of US$74/barrel of oil has been crowned with programmed superficial decelerating inflation.
But it should be easy to successfully manage the Nigerian economy. The Federal Ministry of Finance, FMF pretends not to understand the need to change self-destruct fiscal and monetary measures in order to actualise the goals set in the three-year rolling medium term expenditure framework (MTEF) and which are glowingly promised in the annual budgets. With sound management, available resources could be transformed into FGN independent generated revenue, which could yield federal budget expenditure levels that would engergise the economy. Instead, the Federation Account Allocation Committee (FAAC) in conjunction with the Accountant-General of the Federation has foisted on the economy unlegislated excessive fiscal deficits that cut across the three tiers of government thereby making national economy failure inevitable. To wit, FAAC directs the CBN to substitute and distribute misconstrued naira equivalents of Federation Account (FA) oil earnings to beneficiaries, which is tantamount to CBN proportionate deficit financing of their budget spending.
So what happens? Nigeria’s so-called external reserves, for instance, peaked at $62.08 billion in September 2008. The exchange rate then was artificially fixed at N117.73/$1. By September 2013, the external reserves had declined by $16.81 billion to $45.27 billion while the exchange rate, again artificial, was N157.32/$1. In effect, the CBN wasted the $16.81 billion plus all FA oil earnings during the intervening period on futilely defending the value of the naira (which nevertheless lost 25.17 per cent of its value) and funding imports to the advantage of foreign economies while the country’s infrastructure, manufacturing, other productive and social sectors continued to decay. Inflows of autonomous forex throughout the period was left in private hands to oil national economic devastation through dollarisation, smuggling, transfer of treasury loot and so on.
In the circumstance and given that a Dutch auction system of disbursing forex precipitates domestic currency depreciation and encourages dollarisation, ruins domestic production and exacerbates poverty levels, the CBN’s recent plan to yet again re-introduce the Retail Dutch Auction System (RDAS) and become a retail forex trader in the guise of defending the value of the naira is a shameless attempt to continue to throw away what is left of the so-called external reserves and future FA dollar accruals. RDAS failed thrice before. The plan is unacceptable. Therefore, the false CBN’s external reserves should be frozen and best practice method of infusing foreign exchange into an economy immediately adopted. Funds in the ECA should be shared in dollars for the take-off of the new system.
The Federal Government is the exclusive monetary authority. A country’s total forex receipts irrespective of origin are designated export earnings. In place of the existing obnoxious practice, FA dollar allocations should be released to beneficiaries through loot-proof domiciliary dollar accounts for conversion as and when desired to realised oil-derived naira revenue by deposit money banks (DMBs) with the exchange rate contained in the 2013-15 MTEF serving as the managed for dirty exchange rate. After paying less than 1 per cent commission to DMBs for their services, FA beneficiaries will net genuine naira revenue close to the fake and injurious and deficit-financing naira equivalent amount being collected hitherto. However, after an initial period of about three months, the naira/dollar exchange rate should float as in the world’s successful and leading economies because of the immense attendant benefits.
The implications of the recommended approach include, firstly, government and autonomous inflows of forex will be transacted through DMBs for clearly specified eligible transactions. Surplus forex will be sold by DMBs to CBN for naira to accumulate genuine external reserves. To this growing pool of reserves should be added the frozen false CBN’s external reserves. Funds in excess of the internationally recommended three months’ import cover will become FGN independent generated dollar revenue, which may be appropriated in a supplementary budget to fund federal capital projects and critical programmes including public-private partnership (PPP) contracts. Thus the country will have no need to go abegging for multilateral and foreign direct dollar investments.
Secondly, imports of dollars (these are essentially previously looted public funds that were carted and stashed abroad) should be welcome because the bulk of such imports will end up as external reserves. Thirdly, the ECA, budget oil output and price benchmarks will be discarded; FA accruals will be promptly shared in full to enable beneficiaries to execute additional sorely needed projects; and the Sovereign Wealth Fund will be wholly owned and liberally funded by the Federal Government from external reserves. Thus available resources will be tapped to the full to accelerate national development.
Fourthly, the excess liquidity-induced borrowings from the banking system that form the bulk of the national domestic debt and which is not invested despite its high service cost (it is actually subsidy to banks) will stop to grow. In the national interest, the existing domestic debt stock should be rationalised or written off. Fifthly, the illegally substituted CBN deficit financing responsible for the harsh economic environment will be eliminated; government spending across the tiers will be based on realised revenue and legislated deficit limits; and the 2014-16 MTEF objective to reduce deficit (a clear lipservice) will be finally achieved with resulting “near-term benefits by engendering lower (that is, internationally competitive) interest rates and increasing consumer and business confidence.” Also several challenges cited in the MTEF will abate because inflation will fall below 3%, the level that denotes price stability. The attendant realistic and stable exchange rate only reducing pressures for high emoluments, pensions and so on but also lessening corruption.
Investors will begin to access finance domestically at internationally competitive rates, the factor, which President Goodluck Jonathan gave as investors’ great problem. Their second headache, the paucity of infrastructure, can then be tackled through massive investments by private investors who will capitalise on available domestic competitive financing to undertake PPP infrastructure contracts. That is the surefire road to facilitating the creation of jobs on a massive scale. And the private sector so energized will spew non-oil tax revenue. The foregoing certainly addresses the long expressed but unattained MTEF goal, viz “the focus remains on job creation … as well as the provision of enabling environment for economic diversification and growth.”
Even if the current level of government recurrent expenditure cannot be reduced, any supplementary federal budget spending based on excess external reserves will go mainly to capital projects and lead to improved ex-post budget recurrent and capital ratio. As things stand, the only possible constraint will be where there exists a well-oiled budget implementation machinery to execute projects physically and roll out programmes at the rapid pace the country can now afford.
All in all, Nigeria’s economy can be made to work in the near term thereby reducing poverty and stemming or even reversing the disgraceful brain drain from these shores.