Forex scarcity: CBN and the fiscal policy monster

  Forex scarcity: CBN and the fiscal policy monster

“Companies (and Government agencies), like people, tend to be at least, as sick as their secrets.”   

One of the cardinal mandates of the Central Bank of Nigeria, CBN, is monetary and exchange rate stability. Of late, the apex bank has found itself in a big battle to save the local currency from fiscal policy and structural defects that has put the external sector under permanent pressure.

Today, the exchange rate at the Investors and Exporters (I&E) window is N436/$1.0, while the black market rate is N715. 

Unfortunately, because imported inflation worsens the domestic inflation for an import-dependent economy, aggregate prices have also escalated astronomically. The question is: has the apex bank failed us? Could another governor have done better?

The answer to the first question would appear to be obvious; but Nigerians frequently cannot distinguish reality from mere appearances. To be candid, the revelation that the CBN Governor was (or is) a card-carrying member of the ruling party has muddied the water – making our observations not as clear as they should be. Still we owe the CBN and ourselves as clear a view as we can get the truth – given the secrecy that usually surrounds “political” reports.

That said, the CBN has not failed Nigeria as much as the Nigerian Federal Government failed CBN. 

When Buhari came into office, he committed a great blunder which has affected CBN operations till today. Presidents and Prime Ministers, worldwide, within two weeks nominate three top officials – the Ministers of Defence, Foreign Affairs, and Finance. Those three individuals, first among other ministers, inform the whole world about the sort of policies to expect based on their previous track records. The Minister of Finance is the nation’s window through which citizens and foreigners view the nation’s economy. That is why he/she must possess vast trans-national experience in economics and finance. Buhari failed to appoint the Finance Minister quickly. Instead, he turned the economy over to Vice President (VP) Osinbajo; who immediately after being invested with the ill-fitting title of Chairman of the Economic Management Team, C-EMT, proceeded to announce Zero Sum budgeting without understanding its practical implications. Osinbajo also did not realise that changing the budget system in a large organisation, like the FG, requires a lot of time in order to succeed.

 It is like trying to make a U-turn with a trailer in a narrow street. More to the point; the VP lacked the knowledge and skills to manage the economy. He dragged in the CBN Governor into his team; and Emefiele, inappropriately, accepted to join the Fiscal Policy team while still retaining his position as the Monetary Policy maker. That economic incestuous relationship has had damaging consequences for Nigeria. First sign of trouble was the recession of 2016. From that year, the exchange rate climbed on an upward moving escalator; which is now still going up. From adviser to member is just one step.

“From the sublime to the ridiculous, there is only one step.” 

— Napoleon Bonaparte.

It is difficult, unless Emefiele opens up, to determine when he opted to join the EMT. But, it is impossible to be part of the fiscal policy making body and the leader of the correcting monetary policy making authority at the same time; to place yourself in a situation in which you are correcting the mistakes made by a group to which you belong. 

A good example of that sort of self-created dilemma is the Anchor Borrowers’ Programme, ABP; which is now in shambles. Bandits are now commandeering the harvests by farmers and levying taxes on them as well. It is safer for them to pay Mamu’s friends than to repay their loans to the CBN. A lot of those loans, including those in dollars, are now irretrievably bad. There has been complete silence on that programme as a result.

FG is the biggest sinner

Leadership is the ability to define issues without aggravating problems.” — Warren Bennis, 1980.  

A few days ago, President Buhari, never admitting his own fault, announced that Nigeria’s economic woes have been caused by saboteurs. He wanted his listeners to believe that those responsible for our predicament are unknown individuals and his perfect government is a victim. Nothing can be further from the truth.

While I absolutely agree with Buhari that saboteurs are at work in wrecking our economy, I think some of the worst culprits are well-known.

Before the next meeting of the Federal Executive Council, FEC, Buhari should have a giant mirror installed in the chambers. Everybody should pass in front of the mirror and look. The face they see in the mirror is that of one of those sabotaging our economic and developments efforts. 

Buhari, as President and Minister of Petroleum should go twice. The reason is very simple. Everybody in Nigeria and on earth knows that Nigeria depends almost exclusively on crude oil export for its foreign exchange earnings. We have placed virtually all our eggs in one basket. A sage has advised that if you put all your eggs in one basket, you should watch the basket carefully. 

The first person charged with watching it is the President; the next the Minister of Petroleum and the third, the Minister of Finance. 

When budgets are written, promising so many barrels of crude exported per day, it is their responsibility to deliver the dollars to the CBN fully. But, what do we have? Read the news report and connect the dots and you will realise that it is the FG which should be charged with grievous dereliction of duty and incompetence. They have created the dollar scarcity driving exchange rates up. Furthermore, they know those stealing our crude and how much is stolen. The amount missing represents the supply gap which is sending foreign exchange sky high. Here are the main causes of high exchange rate. 

There is nothing the CBN can do about them. The bank can certainly not print dollars – unless we want American bombers coming in to destroy our country for declaring a war. A few reports will do for now.

Four variables influence the foreign exchange inflow from crude oil exports: quantity exported; quantity stolen; fuel imported and rig count. The situation now can be summarised from the following news reports.

lNigeria’s average oil production drops 13.5% to 1.1mbpd in 7 months;

lN18.38bn spent on fuel subsidy per day – FG, (huge dollar drain);

lOIL THEFT: How security operatives, govt officials run bunkering cartel ($1 bn lost in Q1’2022); 

l Nigeria’s oil exploration begins to decline as rig count falls.

The budget called for export of 2.3mbpd; the dollar revenue negative variance in 2022 is clear already. Add $2 billion theft and it is clear who the saboteurs are.

Recently, the Managing Director of NNPC Ltd, declared that highly-placed people steal our oil. 

Source: Vanguard