HARUNA Y. SA’EED
— Sep 3, 2016 4:37 am | Leave a comment
Prices have continued to rise and our ability to pay for basic and essential items has continued to fall, so are our wellbeing and our prosperity. Investment for the future by firms and individual households are on the decline. Every person on the street accepts that we are faced with inflation. So, the Central Bank of Nigeria, CBN, cannot be wrong in saying same. It is also not wrong in deciding what to do when the economy is faced with uncertainty as to affect the value of our naira as a store of the overall value of wealth. This is a key role as enshrined in the Act establishing it. We know that every player in a soccer game is expected to work toward scoring goals for his team for its pleasure and that of the team’s fans/country. A disaster sets in where we have an “own goal”, where displeasure sets in. Similarly, if a doctor gives a wrong prescription or fails to diagnose correctly, cure will fail to be achieved or even fatality, death, may arise.

We doubt not of the fact that the proper functioning of money is extremely valuable in terms of promoting economic efficiency. Thus, the CBN tries to always regulate the supply of money so that it is sufficiently scarce that it can serve as a store of value. Sometimes however, it does so forgetting that money must, yet be, sufficiently abundant that there is enough for it to service all the desired transactions. Therefore, the banking sector, the CBN system tries to regulate, must be sufficiently robust and stable. It must provide, (and be seen to be doing so) proper incentives for lending to go to viable and plausible projects, rather than wildly risky ones.

The CBN might have, or obviously, looked at the situation as resultant of cash supply, whether from the banking system or whichever source a control of the banking sector can also stem. As a cure, therefore, the CBN raised its rate from 12% to 14%. However, this prescription, we believe, is wrong. If such a prescription has any effect on our financial system, even though Gen. Ibrahim Babangida, the then President, once said that our economy has defied all economic principles, will only worsen our travails.



The source of the inflation killing us today is not money supply. It is not also prosperity. It is recession, as we see with the IMF’s forecast reversal from a positive to a negative (-1.8%) growth.

There seems to be consensus on the real causes of the current inflation, at least outside the CBN. The foreign exchange has seen changes within this period more than ever, in both official under the CBN and in the private markets; Banks and Bureau de change. The dollar has moved from N196 and N230 to about N282 and N413 respectively. With our near total dependence on imported goods, the translation in the rise in their prices is obvious. The pump price of petrol has moved from N86 to a cap of N145. Transportation of persons and goods has to absorb this through their prices. Prices for services of, even, business centres and barber shops saw rises. What we pay for electricity also moved by about 85%, affecting everything on its way. Added to this, capacity utilization in our remaining factories shrunk affecting quality supplied to the market. Again, the positive control of our boarders against smuggling meant fewer good across the border translating into higher prices to cover drop in quantity and increased risk. So, a cocktail of these factors have come together to raise our inflation level and not money supply.

The government, right from the campaign, has made it very clear that a priority would be placed in getting cost of borrowing down, to a single digit. This, it is believed, will bring the cost of doing business and owning assets down. On the side of the banks, this will also stem the incidence of default and bad debts, thus strengthening their balance sheets and confidence in the financial institution. The economy is in recession and cash strapped. The Minister of budget and planning pledged that, with what the government has planned to do, the economy will come out of the recession by the year end. This is saying that what is contained in the budget, will, if adequately implemented, give adequate injection into the economy as to stimulate it to come to life. Therefore, stimulation is another key objective of government now. To date, what we see are only advertisements for the expansion spending. When the jobs are eventually rolled out, spending toward execution will see money changing hands, enhancing both demand and supply – leading to increased production and growth. We can then expect a resultant inflation as a result of this, as growth comes with some level of affluence. Even then, the least the CBN should do is to take action that limits availability of loanable fund. Further contraction of the financial system will further worsen the already bad liquidity contraction situation. The focus of government, and indeed, the CBN is, in the overall, and should be, to loosen the belt for people to take in air freely, or at least more comfortably.

When Monetary Policy Committee (MPC) at its 251st sitting, and the CBN announced the increase of the benchmark interest from 12 to 14 percent, the governor said it was part of the measure to attract foreign capital and check headline inflation. However, it is doubtful if any of the two objectives can be met. Foreign capital is attracted to, all things being equal, profitable environment, while inflation controls are only effective if they attack the root cause of the inflation. Interest rate measures are aimed at controlling money supply – which we have seen earlier as not the cause of this inflation. Rather, we see possibility of it negatively pushing the economy in a number of ways. One such is shifting the objective of the Government in bringing the lending rate further away from the desired single digit to a likely region of 27% – 28%. This will surely bring more hardship to people and organizations already liable to banks – the practice of banks being to adjust rate without recourse to borrowers. Business will hardly cope with additional cost thus, worsening their profitability. Poor income and balance sheet affect stock price. Thus, this action will have a weakening effect on foreigners’ interest in Nigerian businesses. New loans will be less attractive (in line with the objective of the policy), thereby killing, weakening expansion and growth. Inversely, the drop in production with rising demand may push the inflation further up.

Second, as a consequence to the falling activity above, the already bad unemployment situation may further worsen as firms disengage staff while at the same time enjoying high prices for small quantity produced.

Third, jobs or contracts already executed with borrowed funds and not paid for may turn out to be unprofitable leading to possible defaults and bad debts. The spread allowable for jobs is usually around 30% and often not paid for over a period of one year. With interest compounding monthly, the final cost is better only imagined.



– Sa’eed, former Accountant General of Kaduna State and the Pioneer ES, NEITI, wrote from Kaduna
http://leadership.ng/columns/548996/inflation-nigerians-and-the-cbn-a-wrong-prescription

They will soon write this wisdom off as "aggrived PDP"

What a country?

slowly beginning to chock on their spit

Recession, this is the main issue with our economy, we totally dependent on imported goods with minimal export except for oil forgetting that the prosperity of a nation is its resources output. The main solution is to go back to our agriculture. We should stop allude our failure to the government cos that will change nothing. We need proper orientation for sustainable economy.

.

I no read am,,,,,I no tink its important,,,,

the opposition had no plan for the country

no blueprint

no road map

all they wanted was power, nothing more, nothing less

when they asked them to come and debate to show how they would do it, they didn't come because truly they had nothing to say.... just empty promises


well every day is taking us closer to 2019

we still gat our cards and have tied our boots to kick the butts of this administration outta power

This APC govt won't kill somebody with confusion

Tired of wailing

someone read this epistle and help me summarise the better medications that this pharmacist (OP) prescribed..




i need to give bullari some dosage

Abeg, dis one pass my handout lib211..... I no fit read am..


Loool....

The CBN Governor should be removed. He has not demonstrated uncommon ability to do the right thing with interest rate, foreign exchange market and tackling inflation.

"The foreign exchange has seen changes within this period more than ever, in both official under the CBN and in the private markets; Banks and Bureau de change. The dollar has moved from N196 and N230 to about N282 and N413 respectively. With our near total dependence on imported goods, the translation in the rise in their prices is obvious"........Sighs.

I pray for a better economy because our current economic climate is not safe for anyone.

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Hmmm Still blaming Buhari for the recession and loss of jobs in the banking sector? You need to read this: "Don't mind this restless Buhari critic. I was with Intercontinental Bank in 2009 when the Banking sector tsunami swept away all my colleagues in the banks Sanusi Lamido Sanusi claimed they were on the brink of failure. I was with Access Bank in 2010 when the gale of sack continue in the industry. Access and other Banks lay off tradition madness continued till li left the country in 2015. In Dec 2015 and Jan 2016 till now the now the storm ranges unabated. So what's new? Buhari was never part of the government during this period under review. Dollar was not scarce to be 1 to N400. Though there was structural looting and corruption but it wasn't this appaling. No budget padding. The government did not publicly come out to tell us the economy was in recession during that time rather they said Nigeria has overtaken South Africa as the Africa fastest growing economy. Nigeria bankers know today tomorrow someday the chicken will come home to roast and they will be out of job. Amukun eru e woo. .. o ni oke le nwo e ko wo isale. Something is seriously and fundamentally wrong with the foundation of our country, it's principle, policy and polity." - Adekunle Ola Adekunle

@OP True.

I doubt there would be an exit from the present recession by this year end, rather I see things getting worse.

The government needs to operate with a clear and stable policy/roadmap which tackles the problems directly and not keep gambling with ideas.

The MPC's decision to raise the rates was just so foolish.

Like the OP rightly said, the inflation wasn't caused by excess money supply in the system, so why tighten the system?

Secondly, raising rates to attract foreign investors? Really? Yes, our fixed income securities(bonds and Bills) would have better yields and would seem attractive, but would I invest in someone with zero future cash flow?
Why would I trap my money? In plain English, would you lend a huge sum of money to someone without a job or a plan to get one? What exit plan does the country's economy guarantee them? Truth is, they wouldn't come!!

Next, we keep shouting diversification, yes, it's a fantastic idea, but I think the government should show us it's plans towards diversification and not just telling us all to go to the farms.

Increasing food supply within the country would ease our imports greatly, but these transactions would still be naira based or are individuals supposed to export themselves?

There should be a mop up/rebranding strategy for the 'diversification' call in the agric sector at least to ensure we boost our export hence improve our foreign exchange returns(the actual thing that put us in this mess). Other sectors needs plans and focus too.

The country is in a mess and would only get worse.

I wouldn't usually do this, but the Buhari and APC administration seriously need to sit up

#Drops pen

The president should find a way to sack Emefiele and bring in a more competent economist as CBN governor. Most of the problems we are facing now are as a result of policy somersault of the apex bank in the management of our foreign exchange.

what a foolish idea to let the naira float....



you only deal with the black-market anyways,and never with cbn...


its even good sef..it lets of pressure from the goverment like petrol subsidy....


i am soooo happy i am not you right now....

your buy and sell power is nothing compard to the rest of the world..the goverment was even helping you sef..

you will learn the hard way....

Nigerian Economy was never great. We never forecast, but rather, proclaiming as giant as ever..... Abraham Lincoln one said '' the dogma of the quiet past are inadequate to the stormy present. As our cases are new, so we must think anew and act anew'' .... Literally, this recession saga is an act between PMB and Jonathan.


PMB, a similar case of a prophet who believed in his utmost powers to able to raise the dead, who had boasted before a large congregation of his powers. And GEJ, a similar scenario of a mother who has fed her son with poison, killed him and now present the body to PMB (the prophet) to perform prophetic miracles.


PMB, who hurriedly accepted the body did not know the boy have died for days already, trying to explain to the congregation that his miracles do not cover the scenario of raising a 'dead-for-days' body, yet want him to change to a magic act and do?...

;Ddon't quote me oo because I will not take you seriously... We are just trying to look deep into our cases.

magicminister:
I am tired of being bitter and Angry with APC.
Like, it feels like i was scammed. That is one of the worse feelings on earth.
Right now, i just wanna live my life. I don't care if this country sinks anymore. As long as i am okay, i have my generator, i have my cars, my house is still there and food dey my kitchen and my parents are well taken care of.


Dear Jonathan, even though you were never an option for me, i am sorry for voting you out and voting in an idiot. I was deceived and misled.
Please forgive!

Buahaha
Eye don dey clear ba?
You wey vote in idiot what should we call you?

personal59:
Hmmm Still blaming Buhari for the recession and loss of jobs in the
banking sector? You need to read this:
"Don't mind this restless Buhari critic. I was with
Intercontinental Bank in 2009 when the Banking sector
tsunami swept away all my colleagues in the banks Sanusi
Lamido Sanusi claimed they were on the brink of failure.
I was with Access Bank in 2010 when the gale of sack
continue in the industry. Access and other Banks lay off
tradition madness continued till li left the country in 2015.
In Dec 2015 and Jan 2016 till now the now the storm ranges
unabated. So what's new?
Buhari was never part of the government during this period
under review. Dollar was not scarce to be 1 to N400. Though
there was structural looting and corruption but it wasn't this
appaling.
No budget padding. The government did not publicly come
out to tell us the economy was in recession during that time
rather they said Nigeria has overtaken South Africa as the
Africa fastest growing economy.
Nigeria bankers know today tomorrow someday the chicken
will come home to roast and they will be out of job.
Amukun eru e woo. .. o ni oke le nwo e ko wo isale.
Something is seriously and fundamentally wrong with the
foundation of our country, it's principle, policy and polity." -
Adekunle Ola Adekunle

I believe the said write up is one sided and not totally true. As much as I agree that something is fundamentally wrong with the country's principles and policy, the present government has indirectly made it worse

Since you have the right prescription, please channel it via your state Governor to the President. Thanks

Its baffles me how buhari stands to claim past administration is the cause of the present economic crisis.... Isn't too early for us too forget wah happened in buhari regime in the 1980s ..... This is the exact reason the military planned a coup against him..... Buhari is a scum lair hypocrite..... I'm quietly waiting for the senates too kick him out of that sit.... Smh

Which way nigeria

Realy?

Obiwannn:

Buahaha
Eye don dey clear ba?
You wey vote in idiot what should we call you?

na u be d real mumu is d guy wrong to express his feelings get a life guy

All these big big grammar, zombies no go understand

Great Piece. Buhari Needs A Vibrant Economy Team To Turn Things Around. I Hope He Is Not Gonna Continue To Turn A Deafen Hear To Nigerians Yearnings. He Must Put The Interest Of Nigerians At Heart First B4 Political Interest. With This, Things Will Surely B Ok!