A massive and clearly illegal multi-source funding of the federal government by the Central Bank of Nigeria (CBN) could drag the Nigerian economy to its knees, experts familiar with domestic monetary conditions and current happenings at the CBN have warned.

The central bank had, in the last one year, pumped trillions of naira into illegally financing the federal government under different guises: from mass purchase of treasury bills to humongous direct financing of the government through the “window account”.

Insiders say the apex bank is “creating money” to “finance a government that is broke and which does not have economic vision,” in what one of them called a “desperate move by the central bank governor, Godwin Emefiele, to remain in office”.

A former governor of the CBN and a former deputy governor of the bank who spoke with PREMIUM TIMES were both alarmed by the long-term implications of such “direct and reckless financing of government” on inflation and other economic indices, including crowding-out the private sector from the domestic credit creation process.

THE ALARMING TRANSACTIONS

The warning whistle was first blown at the last meeting of the CBN’s Monetary Policy Committee, held between July 24 and 25.

In the communique of the meeting published on Tuesday, members of the policy advisory committee expressed “concern over the increasing fiscal deficit estimated at N2.51 trillion in the first half of 2017 and the crowding out effect of high government borrowing.”

Some members of the committee, in their respective submissions captured in the 50-page report of the meeting, expressed reservations over the apex bank’s handling of key monetary and fiscal issues that may plunge the economy into a ditch.

However, it was an external member of the committee, Adedoyin Salami, who directly painted a gloomy picture of the extent of the government’s financing by the apex bank and other irregularities.

Mr. Salami, an economist and faculty member with the Lagos Business School, literary took the CBN to the cleaners in his assessment of its monetary policy which, he warned, was pushing the country towards a serious economic crisis.

He criticised CBN’s “massive injections of cash” to the government, accusing the bank of serving as a “piggy bank” for the government, against its own rules.

“Monetary data shows a sharp rise in the extent of CBN financing of the government deficit,” he said.

From December 2016, according to the economist, the CBN had variously made cash available to the federal government running into trillions, mostly beyond legal thresholds.

He said the CBN’s claims on the federal government under the period amounts to N814bn, which is “twentyfold higher” than what the law permits.

Ironically, the claim of commercial banks, he said, “rose marginally by 0.4% to N4.6 trillion”.

Another route through which the CBN pumped money to the government, Mr. Salami said, was via the bank’s N454 billion spending on purchase of government’s treasury bills, which he said, had risen by 30 percent.

The government’s overdrafts from the apex bank also rose to N2.8 trillion within the period, representing a five percent increase.

But the sharpest rise in the figures, according to Mr. Salami, was in the government’s “mirror account” liabilities, which rose “from N3 billion at the end of 2016 to N1.5 trillion in April 2017”.

Authorities at the CBN are yet to contradict Mr. Salami’s claims.

ILLEGALITIES

A look at the CBN Act 2007 show that the huge direct financing of the federal government is in direct contravention of clear provisions of the Act.

Although Section 38 (1) of the Act empowers the bank to grant “temporary advances to the Federal Government in respect of temporary deficiency of budget revenue” subsection 2 of the same section stipulates, “the amount of such advances outstanding shall not at any time exceed five per cent of the previous year’s actual revenue of the Federal Government”.

Additionally, subsection three of the section provides that such advances should be paid “as soon as possible and shall in any event be repayable by the end of the Federal Government financial year in which they are granted and if such advances remain unpaid at the end of the year, the power of the Bank to grant such further advances in any subsequent years shall not be exercisable, unless the outstanding advances have been repaid”.

By the estimated N6 trillion earned by the government last year, the CBN should have only granted advances to the federal government not exceeding N300 billion, representing five percent of the earnings.

CONTRACTING PRIVATE SECTOR

The conduct of the government and the CBN, according to the economist, may, by limiting the organised private sector’s access to credit, have contributed to the dire straits in which the sector currently finds itself.

“We thus find ourselves at a point where government borrowing from the CBN is neutralised by raising the CRR of banks, thereby limiting private-sector access to credit,” he said.

“In other words, the private sector is deliberately “crowded-out”. It is ironic that the government, in need of tax revenues – having in the 1st half of the year accumulated its full-year deficit – is constraining the private sector from which the sorely needed revenues are to be derived.”

Sounding perplexed and perhaps frustrated, Mr. Salami said, “Whilst I still wonder what the underlying economics is – I sincerely hopes it works!”.

DESPERATE MEASURES

To cushion the impact of these mass and illegal financing of the federal government, experts say, the CBN has been scrambling to evolve policies that would counter the destructive effects of its actions.

Some of these measures, PREMIUM TIMES understands, include the regular pumping of forex into the foreign exchange market to cater for high demand due to the attendant rise in naira liquidity.

The apex bank, Mr. Salami said, also carries out “special auctions” to help normalise banks’ Cash Reserve Ratios (CRR).

“To prevent the effect of continuous and massive injections of cash to fund the Federal Government showing up in sharply higher inflation and currency weakness, the Central Bank now applies “special auctions” Mr. Salami said.

Apart from raising the CRR beyond the 22.5 percent approved rate, Mr. Salami said, “the format of these “auctions” recall the dark days of “stabilisation securities”.

Mr. Salami also flayed the bank’s “seeming haste to declare “victory” for “fragile” improvements in forex and inflationary statistics, saying the country is far from being out of the woods in some of those areas.

He lamented that “the most challenging of the present characteristics of the economy in Nigeria is the adoption of a quantitative easing stance by the management of the Central Bank”.

Another member of the MPC, Abdul-Ganiyu Garba, also faulted CBN’s monetary policies, accusing it of causing “contradiction or inconsistency problem”.

“The coexistence of high interest rate and growth in money supply are unnatural. Indeed, it generates a contradiction or inconsistency problem. Strong growth in money supply in all countries that adopted quantitative easing pushed down interest rates almost to zero,” he said.

Mr. Garba, a professor, also indicted the bank for the significant distortions in “the forex market, the money market, the stock market and domestic prices” due to “strong growth in money supply in 2015 and 2016”.

A former deputy governor of the CBN and well-regarded economist who spoke to PREMIUM TIMES on condition of anonymity described the actions of the apex bank as “reckless” and beyond the parameters set by law.

He accused Mr. Emefiele of “hauling cash” to the government in contravention of the set rules and statues of the apex bank.

“CBN governor is a banker and adviser to the government,” he said. “The bank is a monetary authority, not financial authority. Their role does not mean reckless lending to government,” he said.

According to him, the government and the CBN “are setting the economy for a big fall”.

He said both the government and the bank “need to take policy adjustment measures” if they want to change the position of things, otherwise “they will continue to create money which will lead to serious inflation”.

MORE TROUBLES

Apart from the huge advances it is illegally taking from the CBN, the federal government has also been ramping up a raft of local and foreign loans.

Another MPC member, Suleiman Barau, also sounded a note of warning on the implication of the payment of N760 billion as Paris Club refunds to states.

Mr. Barau, a deputy governor of the CBN, added that the possibility of payment of more money to states in the name of the refunds could further complicate economic recovery.

“The whole idea underlying the deployment of the fund is not completely bad as it could stimulate growth in output in the long run.

“The reality, however, is that the impact of this type of injection on aggregate demand tends to precede the influence on aggregate supply and invariably stoke inflation in the short run. Besides, there is evidence of growing liquidity surfeit in the banking industry in the face of sluggish growth in credit particularly to the private sector.

“It is not unlikely that the current injection may complicate the liquidity surge with potential adverse impact to the foreign exchange markets,” he explained.

CBN RESPONDS

This reporter’s efforts to reach CBN’s acting director of corporate communication, Isaac Okoroafor, for comments, on Sunday, were unsuccessful.

He also did not answer or return calls Monday morning. He however sent a text message requesting an SMS enquiry.

But as at the time of publishing this story, at 10 a.m on Monday, Mr. Okoroafor was yet to respond to the text message enquiry sent to him.

He however responded about an hour later, asking rhetorically; “is it illegal for CBN to fund government activities?”

Reminded that such funding were far off the legal boundaries, he responded: “I can’t respond to rumours or speculation. All I want to say is that there’s no illegality in the advances CBN has made to the Federal Government.”

OPTIMISTIC EMEFIELE

However, in his personal statement contained in the MPC meeting report, the CBN governor, who is also chairman of the committee expressed cautious optimism on the economy.

He also acknowledged the effect of the government’s undue mopping of money from the system, although in a subtle and passing manner.

Mr. Emefiele noted: “The growth in government credits due to expanded fiscal operations evokes the crowding-out of productive private sector in the short-run.

He however expressed optimism that “if the government succeeds in reducing the infrastructure deficit through its fiscal operation, I expect a favourable crowding-in of the private sector in the medium- to long-term.”

The CBN governor also blamed inflation and foreign exchange crisis on other factors other than he and the CBN’s roles.

“As I had noted earlier, the underlying deterrents include: foreign exchange scarcity (due to low crude oil receipts and inadequately diversified economy); constrained fiscal space; infrastructural bottlenecks; high energy prices; and depressed domestic demand (partly attributable to sizeable salary arrears owed to some civil servants),” he said.

EDITOR’S NOTE: This post has been updated to reflect the reaction by the CBN, provided after publication.

Source: https://www.premiumtimesng.com/news/headlines/244088-exclusive-nigeria-central-bank-endangers-economy-bank-illegally-funnels-huge-cash-fund-broke-federal-govt.html

These accusations are serious. It would lead to future inflation down the road if the money lend gets onto general money supply. Anyway the crowding out is most concerning thing. If private sector can't get credit we are biting time for oil recovery.

“The coexistence of high interest rate and growth in money supply are unnatural. Indeed, it generates a contradiction or inconsistency problem. Strong growth in money supply in all countries that adopted quantitative easing pushed down interest rates almost to zero,” he said.

This is really odd. QE doesn't cause high inflation as seen on USA and Japan that both did it. The interest rates were kept steady since they essentially played with yield curve by buying treasuries. Is Nigeria really doing QE?

I was correct that the Treasury bills sales figures under this govt was artificial because I noticed the Way the were being bought faster than any other time in our history even though we were in a recession ..Ladies and gentlemen we have all witnessed the most corrupt, most deceptive, most brutal and most dangerous regime in our collective history ...Even I couldn't have fathomed such fraud like buying up Ur own treasury bills ..damn ..Sarrki explain this now

when u have an illiterate tyrant in power.

yaki84:
when u have an illiterate tyrant in power.

That guy is a dangerous criminal ..How does the govt buy it's own treasury bills? ....This is horror corruption

yaki84:
when u have an illiterate tyrant in power.

word.
The vegetable tyrant is just another kill and divide visionless mallam..

RomeSankara:
I was correct that the Treasury bills sales figures under this govt was artificial because I noticed the Watney were being bought faster than any other time in our history even though we were in a recession ..Ladies and gentlemen we have all witnessed the most corrupt, most deceptive, most brutal and most dangerous regime in our collective history ...Even I couldn't have fathomed such fraud like buying up Ur own treasury bills ..damn ..Sarrki explain this now

Some of us who have foresight warned Nigerians. It's such a shame now. We were moving forward. Then Buhari came!
Back then in 2015, when I saw how the masses were ignorantly rooting for this man, deep down in my heart I thought to myself hope by the end of this regime we won't look back at Jonathan's days and say, We were moving forward! Alas! this regime has not even clocked 3 yet. O God of creation, come direct our noble cause! We (including the innocent of us) are sorry for choosing 'a king' for ourselves.

Goverment of rationing. They handled the economy like rice and beans. Osinbanjo put salt not realizing Bubu already added salt. Now the whole nation has eaten but excess salt is harmful to the body and can kill.

Blue3k:
These accusations are serious. It would lead to future inflation down the road if the money lend gets onto general money supply. Anyway the crowding out is most concerning thing. If private sector can't get credit we are biting time for oil recovery.



This really odd. QE doesn't cause high inflation as seen on USA and Japan that both dI'd it. The interesting rates were kept steady since they essentially played with yield curve by buying treasures. Is Nigeria really do QE?

QE was required in the industrialized countries because they were facing demand-side recessions, and had already cut interest rates to about as low as they could go. Nigeria's inflation is supply-side driven, and as such any attempt at Keynesian "pump priming" will only lead to runaway inflation. The smart thing to do in a situation like the one Nigeria was facing would have been to move the Naira to a clean float (i.e. a single rate with no government intervention whatsoever) while hiking interest rates, slashing public expenditures, and embarking on a rapid, large-scale privatization program to draw lots of forex into the economy and fund the government's revenue gap. Radical privatization would also have moved all the privatized "assets" [sic] off the government balance sheet, freeing up funds for the capital investment Buhari claims to want.

Unfortunately Buhari is a total economic illiterate whose ideas don't seem to extend beyond Soviet-style command economics, and the northern clique he trusts stands to lose out big time if the Nigerian state is ever downsized and opened up to competition. It's therefore unsurprising that none of the sensible things to do have actually been carried out, with the partial exception of when Buhari first went on his medical vacation in London, and Osinbajo tried to loosen things up a bit. The best thing for Nigeria would have been for Buhari to resign to face his medical issues full time, but he and his close associates clearly love the trappings of office too much for that.

dodelight:

Some of us who have foresight warned Nigerians. it such a shame now. We were moving forward. Then Buhari came!

Forward how?

dodelight:

Some of us who have foresight warned Nigerians. it such a shame now. We were moving forward. Then Buhari came!

We were truly moving forward

RomeSankara:
I was correct that the Treasury bills sales figures under this govt was artificial because I noticed the Watney were being bought faster than any other time in our history even though we were in a recession ..Ladies and gentlemen we have all witnessed the most corrupt, most deceptive, most brutal and most dangerous regime in our collective history ...Even I couldn't have fathomed such fraud like buying up Ur own treasury bills ..damn ..Sarrki explain this now

Buying up your own treasury bills isn't fraudulent. It's called open market operation which is how the central bank controls rate. The big issue is these guys maybe breaking central bank rules as a way to fund government under table. The treasury bill sales you could be right on.

I remember them offering them eurobond. That means high yield in foreign debt. That's a good deal to some people that trust Nigerian government. Correct me if I'm remembering wrong example.

Let me also take this opportunity to add that this news report only substantiates what I've been saying about Emefiele for a long time now, which is that he is a spineless, grovelling coward who is so eager to cater to Buhari's ridiculous whims that he ignores the independence he is statutorily guaranteed. If Emefiele wanted to say no to everything Buhari was demanding, there would be no legislative or administrative means Buhari or anyone else could use to override him, short of getting both chambers of the NASS to strip the CBN of its independence, and the international backlash that would ensue from such a move would kill the attempt at the earliest stages. Barring some sort of blackmail, the only remedy Buhari would have against Emefiele would be to refuse to extend his tenure for another term, but this isn't something a central banker with any principles would be worried about. Unfortunately for 180 million Nigerians, Emefiele is not such a man of principle.

Desyner:
Forward how?

Yes we were ..was Ur life not better then ..couldn't you buy brand new things..Nigeria was actually better then

**puts hand on friends shoulder and whispers** i see thieves everywhere

And the subtle corruption continues while the propaganda anti-corruption fight is still loudest.So much moral burden for the government of change.Where are the zombified defenders of the corruption-riden APC government? Of course one will never find them on thread like this.

Is it not curious that the international community did not celebrate the fact that the National Bureau of Statistics declared that Nigeria is out of recession? Why are foreign investors shying away from Nigeria? The fact is the government can succeed in deceiving a lot of gullible Nigerian Zombies but the international communities knows better.......Our economy is moving on the fast lane to disaster........Thanks to incompetency and insincerity of this present government......Time we tell

omohayek:

Nigeria's inflation is supply-side driven, and as such any attempt at Keynesian "pump priming" will only lead to runaway inflation. The smart thing to do in a situation like the one Nigeria was facing would have been to move the Naira to a clean float (i.e. a single rate with no government intervention whatsoever) while hiking interest rates, slashing public expenditures, and embarking on a rapid, large-scale privatization program to draw lots of forex into the economy and fund the government's revenue gap. Radical privatization would also have moved all the privatized "assets" [sic] off the government balance sheet, freeing up funds for the capital investment Buhari claims to want.

It's the logical thing to do but they don't want backlash of high inflation or selling assets. They would rather drain their reserves to have high naira value. I honestly gave up on them in that respect after listening Mr. Emefiele talk down on it.

It's always weird story with privatization. Everyone know government is trash at managing refineries but we can sell it because nationalis lose heads. We can't concessions it because either because of buhari. They would rather load up on debt crowd out. Then pry private sector covers their short fall.

Blue3k:


It's the logical thing to do but they don't want backlash of high inflation or selling assets. They would rather drain their reserves to have high naira value. I honestly gave up on them in that respect after listening Mr. Emefiele talk down on it.

It's always weird story with privatization. Everyone know government is trash at managing refineries but we can sell it because nationalis lose heads. We can't concessions it because either because of buhari. They would rather load up on debt crowd out. Then pry private sector covers their short fall.

But thanks to this cowardice Nigeria has now suffered the worst of both worlds, high inflation and the first recession in 25 years. Russia did most of the right things, and despite also having to deal with Western sanctions (because of the Crimean invasion) Russia has neither suffered Nigerian levels of inflation nor Nigeria's radical economic slowdown.

As for the privatization thing, I know I sound like a broken record on this, but Buhari's refusal to do anything about it can't be understood without thinking about the ethnic angle. There's a reason why the only other Northerner to rule since 1999 was also strongly opposed to privatization: Nigeria's bloated public sector, with its "federal character" obligations and whatnot, provides a huge source of patronage to northern politicians, and privatization would mean all these northerners would be forced to compete with their southern counterparts purely on the basis of merit - and there's no question what that would mean in terms of who gets employed and at what levels. The degree to which the Nigerian state is rigged to favor Northern interests is easy to underestimate if one just looks at federal allocations.

One of the consequences of the northern inability to compete on the private sector's level playing field is that northern elites aren't all that bothered about losing out on the opportunities a stronger private sector would provide. After all, it's not as if most of them would be in any position to take advantage of said opportunities, so why should they care?

omohayek:

But thanks to this cowardice Nigeria has now suffered the worst of both worlds, high inflation and the first recession in 25 years. Russia did most of the right things, and despite also having to deal with Western sanctions (because of the Crimean invasion) Russia has neither suffered Nigerian levels of inflation nor Nigeria's radical economic slowdown.

As for the privatization thing, I know I sound like a broken record on this, but Buhari's refusal to do anything about it can't be understood without thinking about the ethnic angle. There's a reason why the only other Northerner to rule since 1999 was also strongly opposed to privatization: Nigeria's bloated public sector, with its "federal character" obligations and whatnot, provides a huge source of patronage to northern politicians, and privatization would mean all these northerners would be forced to compete with their southern counterparts purely on the basis of merit - and there's no question what that would mean in terms of who gets employed and at what levels. The degree to which the Nigerian state is rigged to favor Northern interests is easy to underestimate if one just looks at federal allocations.

One of the consequences of the northern inability to compete on the private sector's level playing field is that northern elites aren't all that bothered about losing out on the opportunities a stronger private sector would provide. After all, it's not as if most of them would be in any position to take advantage of said opportunities, so why should they care?

Gbam.

But where is lalasticlala sef

Mr Integrity my behind.... bs!

.... Government of integrity indeed....
... Only the zombies are blinded

vegetable is really pighting kworoption that man is just a ghost in aso rock, totally useless.
I said it! The monumental degree of corruption under vegetable's govt will make the devil look like a born again saint.

J

Buhari and Aisha are really embezzling heavy through CBN and EFCC trust me

Tell me more. This thing looooong mehn. Who is stealing the money is what i need to know.

Seun u dey sleep.... U type bank 2 times

A

Pls who has dat michael jordan laugh gif abeg

Buhari is a thief.....