“Inflation has been stuck in the low double digits for the past two years and foreign reserves have been falling as the Central Bank of Nigeria has focused on maintaining exchange rate stability and low interest rates.

“The fiscal stimulus intensified in 2010, notwithstanding the already solid growth performance and high inflation. After rising by 10 percent in 2009, consolidated public spending increased by 37 percent in 2010. The non-oil primary deficit has increased by 5 percentage points to 32 percent of non-oil GDP.

“Despite world oil prices well in excess of the budget benchmark price, the government spent all current oil revenues and drew on savings in the Excess Crude Account, at a time when stabilisation called for a rebuilding of buffers. Despite high inflation, the CBN reduced the rate on its standing deposit facility. In response to pressure on the currency, the CBN sold reserves rather than raise interest rate or let the exchange rate depreciate. The CBN recently raised interest rates, but short-term real interest rates remain negative,” the IMF noted in the statement.

It said further that monetary tightening may be needed should inflation pressures continue.

It stated that directors took note of the staff’s assessment of an overvaluation of the naira, and stressed that greater exchange rate flexibility would prevent one-way bets in the foreign exchange market and cushion external shocks.

Kobojunkie:

Did you read the article at all? We had Billions in reserves but we lost them to propping up the naira. I don't believe you are answering the question at all and @Yeswecan's rant on how the IMF is to blame is unacceptable as answer to what @OAMJ asked.

Don't lecture me, just answer the questions. Or should I say that your answers so far do not seem to be making sense to me considering the much I know of the situation.

yeswecan:

Can you explain to me how we lost billions by keeping Naira where it is? There is a difference in saying "we are losing billions" and "we will gain billions".

The truth is that folks on here don't understand the concept of money in economic sense. Money refers to the volume of economic activities not paper form. You can print paper money like Zimbabwe and remain poor.

yeswecan:

Everything is wrong.

Our earning - my friend we have no real earnings. What we have is money derived from sale of our resources. Tell me a powerfull economy that achieved real growth - not figures- from selling off resources. Russia never really experienced growth until it moved into Production, now she is part of of emerging world not because of her gas but production and sales. Even all though the cold war years Russia was never an economic power because all she does was sell off resources without creating wealth.  Creation of wealth is what empowers the people, what creates the bourgeois needed to drive the economy. you sell off resources and share the money among governor and senators - use less than10 % of the amount sold for development and you are talking about economy. Economy is the system of production and distribution and consumption, we have none.  Don't be deceived.

We have to start allover again. Yes we need true capitalism in Nigeria where government gets out of the way and allow those who owns the oil sell them and pay tax for it, create policies that will make people flourish. The government needs to be hungry for the people's tax not people's resources.

manny4life:

I believe I have answered the same question previously. We lose billions because we don't have any revenues let alone earnings at all from export to balance our trade. @yeswecan answered most part of it. The sale of oil isn't a true source of earnings; it's just revenue. If I begin to explain now u would say I'm lecturing. Nigeria has no earnings (profit) is zero. Unless the govt starts earning (taxes, foreign devs, developments, investments, etc) other than sale of oil, we would continue to plummet and borrow etc. If the Naira fall, then you would wish the worse never happened.

Onlytruth:

We'll soon start blaming IMF for NEPA. I'm laughing.

OAM4J:


Am not keen about those economic syntax or semantics. Fact remain we are making money (whether it is from sales, earnings, revenue or not). My concern is what have we done with that money? And what do we have to show for it? And why do need to spend more than that? on what?

For me we can not begin to to talk of real developments and building industries and infrastructures if we can not account for what we are making.

I was expecting us to see this as consequences of spending more than 70% of your budget on recurrent expenditures and having to borrow to to finance more than 50% of your capital expenditure. Our government is wasteful and we must cut down the cut down the cost of running government otherwise, whether we agree with IMF or not, if things continue this way, we will soon be carrying Naira on sacks to get $1000 because the reserve is bound to finish if we are not saving.

4 Play:

The CBN has been depleting the foreign reserves in a futile bid to hold up the value of the Naira. The Naira's value falls where the demand for foreign exchange exceeds its supply.[b] The CBN tries to mitigate the Naira's fall by dipping into the foreign reserves to improve supply. [/b]The problem is, I think they've overdone it this time. If rising oil prices has not provided Nigeria with enough US dollars, it's time to allow the Naira fall. The more the foreign reserves are depleted, the more rapid the Naira will fall.

OAM4J:


Am not keen about those economic syntax or semantics. Fact remain we are making money (whether it is from sales, earnings, revenue or not). My concern is what have we done with that money? And what do we have to show for it? And why do need to spend more than that? on what?

For me we can not begin to to talk of real developments and building industries and infrastructures if we can not account for what we are making.

I was expecting us to see this as consequences of spending more than 70% of your budget on recurrent expenditures and having to borrow to to finance more than 50% of your capital expenditure. Our government is wasteful and we must cut down the cost of running government otherwise, whether we agree with IMF or not, if things continue this way, we will soon be carrying Naira on sacks to get $1000 because the reserve is bound to finish if we are not saving.

EzeUche_:

Neocolonialism is alive and well and only a fool would deny that.

Look at what the West has been doing to Comrade Robert Mugabe, when he wanted to give back the land that was stolen from ancestors a hundred years ago. They put economic sanctions on his country!

10cirenoh:

IMF = Rich Western Elite.

Kobojunkie:

Also @Manny4life,

I believe this is where I got the idea that the money has been spent on holding up/propping up the naira's value

Normally, I stay away from these because, when it comes to economics, I am what you consider a layman. However, I would like to know where all that money went.

manny4life:

Just because Nigeria makes revenue of oil doesn’t mean it earned revenue. Even at that, we need more than just fixed asset income, we need volume. Oil ain’t just one of it; we earned revenues from the sale of oil, then what? That’s it?

manny4life:

Ms Kobo, exactly what I mentioned. Please read back to where I talked about foreign exchange.

"The Naira's value falls where the demand for foreign exchange exceeds its supply. The CBN tries to mitigate the Naira's fall by dipping into the foreign reserves to improve supply"[i][/i]
I’m glad that you established that fact; foreign exchange is exceeding its supply because there are no foreign investment . People do not want the Naira, and for people to want the Naira there has to be products for them to buy. If they want a product in Nigeria, they would buy Naira for dollars increasing our reserve in dollars. Now, because Nigeria is exceeding it supply for dollar demand, it means Nigeria is importing relatively because we need dollars to buy from abroad and when then there isn’t an offset to “balance of trade” when surpluses is less than deficit that’s what you see. Sad truth is Nigeria gradually heading into deficits,, hence the reason why we have to borrow more money. No offense but its simple economics. In actual sense, you can say we running into deficits rather than u saying we propping up the naira

EzeUche_:

[color=#990000]

It is more complicated than you think.

Kobojunkie:


@Manny4life, I don't care of the demand or none of the naira. I am more concerned about why we are spending to prop it up. Over and over now, I have mentioned this because that is what I want to know the why of . . .

Kobojunkie:


@Manny4life, I don't care of the demand or none of the naira. I am more concerned about the part where he says the CBN has been spending to prop it up. Over and over now, I have mentioned this because that is what I want to know the why of . . . I want to know more of where all that money we had, went.

EzeUche_:

Gbam!

And some Africans think these organizations are our saviors. It is disgusting to say the least.

Africa will not progress until we nationalize these foreign organization operating within our borders and then selling it to ourselves, so we can develop them ourselves.

We must also do the opposite of what the IMF tells us to do. They tell us to devalue our currency, we do the opposite. They tell us to stop providing subsidies to our farmers, we do the opposite. They tell us to open our economies for trade, we will protect our economy, by protecting industries.

OAM4J:

You are not getting my point, I agree we need volume and real earnings from many other sources, other than oil revenue, but my concern is; why is the 'little' we are getting from oil not well accounted for? or should I say why am I not seeing any tangible thing its being spent on.

If from the same oil, we were able to safe billions under obj, paid our debts and built up ECA of over $30B, how come while we are still making money from oil, after exhausting the ECA, we now need to use our reserve to defend the value of Naira? What happened?

manny4life:


Most of your money went ot offsetting TRDAE DEFICITS and not propping Naira. These are two different meaning that is if "propping up Naira" has any economical sense. What you quoted said CBN dipped into foreign reserve to meet foreign exchange demand, so your money went to offsetting deficits. I hope that answered your question.

4 Play:

The CBN has been depleting the foreign reserves in a futile bid to hold up the value of the Naira.

manny4life:


These are two different meaning that is if "propping up Naira" has any economical sense.

OAM4J:

That means we are spending/consuming more than we are making, right? Why is that, especially at the time of oil boom?