In a report titled “FG’s Monetary Policy injurious
to job creation” in the Vanguard newspaper
edition of June 7, 2014, Adams Oshiomhole, the
Edo State Governor described the Central Bank of
Nigeria’s Monetary Policy framework as injurious
to job creation. Oshiomhole observed that “current monetary strategy would discourage
employers of labour from setting up businesses
because interest rates are very high”; in the
Governor’s words, “it is like telling someone to
live long and then giving him poison”. “How can
you create jobs, by pricing money out of the reach of investors in the name of achieving
market stability?” Oshiomhole concluded that
rapidly increasing job opportunities will not be
possible without appropriate supporting
infrastructure and liberal access to cheap funds. Incidentally, The Guardian newspaper edition of
6/6 2014 (Pg 17) had also carried a report that
the Chartered Institute of Taxation of Nigeria
(CITN), at its recent annual general meeting,
advised that “government should consider a
complementary policy for free returns on Treasury Bills and bonds”. The Chairman of the
Institute, Mike Chidolue pointed out that this
would stimulate “free flow of bank credit so that
the private sector could gain better traction, than
it presently does”; i.e., if government refrained
from paying inordinately high interest rates to remove perceived excess Naira supply from
banks, a larger flow of cheap loanable funds will
become available to the real sector for investment
and job creation. Indeed, Nigerians must wonder why
government’s risk free sovereign loans should
attract interest charges as high as 15% when
infact similar loans in focused, disciplined and
successful economies cost less than 4%. Nigeria’s
accumulated long term domestic loans (bonds) currently exceed N10tn ($60bn) and will attract
over N700bn as debt service charges (i.e. almost
70% of total capital expenditure of N1.2tn) in
2014. This already bloated debt service charge
exclude over N300bn also projected for servicing
short term loans (Treasury bills) which CBN, impulsively, regularly raises to remove perceived
surplus cash from the money market at double
digit cost, in order to restrain inflation. Ironically, CBN’s anti-inflation strategy
deliberately instigates obnoxiously high interest
rates which crowd out investors’ access to the
alleged existing surplus cash; furthermore, it is
inexplicable that surplus cash can exist side by
side with scarcity and restrained access to cheap loanable funds to the real sector; surely, no
commodity becomes more expensive when
there is market surplus of that item. Regrettably,
our government may have spent over $20bn
(over N3tn) since year 2001 on interest
payments to banks for the simple joy of keeping the surplus cash of commercial banks as idle
deposits with CBN. The Apex bank has often
defended this disruptive monetary practice by
insisting that, when there is systemic excess
Naira supply, it is imperative to stop the threat of
inflation (i.e. too much money chasing too few goods) by reducing the available amount of
spendable /loanable funds in the market. In reality, the challenge of excess liquidity
(surplus cash) is not peculiar to the Nigerian
economy, but surely, no successful economy
pays double digit interest rates for borrowing
funds which are intended to be ultimately kept as
idle deposits! Indeed, the European Central Bank (ECB) recently tackled this same issue in favour of
its citizen’s welfare, by directing that European
banks would henceforth pay the ECB a modest
interest rate of 0.1 percent on the surplus-cash
balances which commercial banks mandatorily
keep in the custody of Europe’s Apex Bank. Clearly, nothing stops our own CBN from
pursuing a similar negative cost strategy for
managing perceived systemic surplus cash.
Expectedly, the profitability of Nigerians banks
have, over the years, benefited significantly from
continuously receiving government deposits at zero percent while the Central Bank turns round
to pay double digit interest rates for the simple
joy of warehousing the “excess” cash balances
of these banks, while ironically, the same
beneficiary banks of such largesse offer barely
5% for the custody of their own customers’ deposits? Ironically, our Economic Management Team,
respected public analysts, and indeed the general
media, have often mischievously applauded this
predatory strategy as best practice. Nonetheless,
in its efforts to control money supply, the CBN has
always, surprisingly clearly ignored consideration of other more socially responsible
strategies which support industrial and economic
growth with increasing job opportunities. For example, the CBN could in reality, effectively,
easily modulate the problem of perceived surplus
cash by simply increasing the mandatory cash
reserve and liquidity ratios for banks. Thus, if for example, the mandatory cash reserve
requirement for commercial banks is raised
across the board from the current 15% to even
beyond 50 percent, (for both public and private
sector deposits) the CBN would more efficiently
reduce the erstwhile eternal burden of systemic surplus cash without the collateral of liberally
subsidizing commercial banks with over $20bn
which could have been better applied to
infrastructure and real sector funding since 2001.
It is undoubtedly more socially responsible to
control the unceasing CBN self-instigated burden of ‘surplus cash’ at no cost to Nigerians as
currently practised by the European Central Bank
rather than wastefully support exceptionally
bounteous commercial bank profits at the
expense of the welfare of our people. If CBN emulates the people and growth
supportive ECB monetary strategy, the decades
long free lunch enjoyed by banks in receiving
bonanza interest rates on government’s free
funds would be over and the banks would have
no other alternative than to pay serious attention as recently demanded by Oshiomhole and the
CITN Chairman, to enthusiastically collaborate
with the real sector to provide increasing
investment funds at reasonable cost. Curiously, however, our monetary authorities
have remained in denial that the true cause of
eternally surplus Naira which fundamentally
distorts our economy is actually, CBN’s monthly
substitution of Naira allocations for dollar derived
revenue. The critical question however is, who will bell the
cat; certainly not the Economic Management Team
which consciously condoned this anti-people
subsidy of banks for so long; certainly also not
the CBN, whose steady accumulation of
comparatively buoyant reserves were made possible with the crazy strategy that eternally
creates surplus cash with Naira substitutions for
dollar revenue to poison the whole economy.
Regrettably, our internationally acclaimed
experts, in the Federal Executive who
surprisingly gloated over CBN’s socially oppressive strategy for so many years may not
also rise to the task! The question is can the
National Assembly stop this blatant economic
mismanagement or are we to assume that they
may also be complicit in the ongoing treasury
looting?
SAVE THE NAIRA, SAVE NIGERIANS.
http://www.vanguardngr.com/2014/06/treasury-bills-can-nass-stop-treasury-looting/