Opinion: Treasury Bills: Who will stop this looting spree?

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By Henry Boyo

The N6.07tn 2016 budget was celebrated as the biggest annual fiscal plan ever and expectedly, it induced public expectation that the projected increase in expenditure would stimulate economic growth and increase job opportunities.

Conversely, however, by December 2015, the Central Bank of Nigeria had already resolved and projected to remove what it perceived as systemic excess funds of about N6.0tn from the money market between Jan-Dec. 2016, so as to reduce spending and restrain further inflationary pressure in the economy.

Worse still, the N6tn projected borrowing by the CBN would price loans out of the reach of the real sector, but the banking sector, particularly, was probably made richer by over N600bn by December 2016.

The above title was first published in The Punchand Vanguard Newspapers on December 29, 2014.

The contradictions that have precipitated our failed economy are probably best captured by the stark reality of deepening poverty and the current high unemployment rate, despite the recently celebrated $540bn Gross Domestic Product upward revaluation and increasing government revenue, with bountiful external reserves to boot. However, a closer examination of Nigeria’s prevailing fiscal and monetary strategies, suggests that we are in denial of the deeply rooted cause of deepening poverty in the midst of plenty.

Furthermore, it is inexplicable that, despite the present acute infrastructural deprivation, we persistently appropriate less than 20 per cent of annual budgets to upgrade social infrastructure, while allocation for education also,remains less than one third of United Nations Educational, Scientific and Cultural Organisation’s best practice recommendation of 26 per cent of annual budget.

Nonetheless, it is in the area of monetary policy strategies that the contradictory impact of government’s decisions becomes more glaring. Regrettably, the same odious strategies, which antagonise industrial growth and social welfare, have, in the manner of steady propaganda, become wrongly accepted as best practice options in the public space.

Media reports glibly extol the monthly process with which the CBN borrows hundreds of billions of naira by selling Treasury Bills to banks, in order to mop up perceived systemic excess naira supply and restrain inflation, as a progressive strategy “that assists commercial banks to manage their surplus cash holdings efficiently.”

Sadly, such positive media undertone suggests that the CBN relentlessly empowers banks to serve as strategic mediators between investible funds and the real sector in order to successfully drive inclusive economic growth. However, with the present evident comatose economy, the media may have become inadvertent collaborators in mischievously misrepresenting the negative economic and social consequences of the CBN’s present monetary strategies.

Conversely, if the public and the media carefully examine the high cost of the ceaseless borrowings with Treasury bill auctions to hold back inflation, by reducing naira liquidity and restraining bank lending and consumer spending, the apex bank’s interventions would be seen as bizarre strategies that require urgent interrogation.

For example, it is inexplicable that despite the unusual oppressive burden of eternally surplus naira in the system, the cost of funds still remains oppressively high around 20 per cent and becomes an impediment to real sector growth and job creation.

However, there is certainly no commodity that rises in price when its supply is well in excess. So, why does the CBN wilfully borrow allegedly surplus funds and pay high rates of interest (between 9-16 per cent) for what are clearly risk-free sovereign loans?

Furthermore, how much does it cost government to service these oppressive counterproductive loans annually? Besides, what is the origin of this apparently unstoppable unceasing flood of surplus Naira and who are the prime beneficiaries of this liquidity mop up strategy?

It is worrisome that the public wrongly assumes that the hundreds of billions of naira borrowed annually, with such high costs, are actually applied to improve social infrastructure. This is clearly far from the truth. We must remember that if the funds were initially mopped up because they were adjudged to be excess and antagonistic to the promotion of stable market prices, it would be counterproductive to recycle the same funds, as supportive intervention funds, into an already cash flushed system for any purpose whatsoever.

Curiously, therefore, despite the heavy collateral of increasing national debt propelled by the self-inflicted shylock rates of such borrowings, the apex bank actually also consciously and deliberately crowds out the real sector from cheap loanable funds that would spur more investment and job opportunities because of the much higher interest rates that government is willing to pay.

Expectedly, the attendant bountiful profit from a double digit interest rate income for doing nothing is sufficient attraction for commercial banks to shun lending to the real sector, particularly the SMES, who really cannot be competitive when the cost of funds is beyond single digit. Clearly, therefore, CBN’s Treasury bills auctions, as a strategy remains the actual number one enemy of industrial growth, as well as the major threat to job creation and inclusive economic progress.

If the impact of the CBN’s failed monetary strategy is understood from the preceding narrative, the media will certainly be more circumspect in their evaluation and overt endorsement of the impact of the current strategy of mopping up perceived excess liquidity to restrain inflation.

Regrettably, despite other desperate complementary monetary controls, such as the present 75 per cent Cash Reserves Requirement for public sector deposits and the CBN Monetary Policy Rates hovering at an industrially disenabling rate of 13 per cent, excess liquidity still incredibly remains uncaged. Sadly, the monetary measures recently rolled out by the CBN to checkmate runaway inflation suggest that it will be more of the same menu that has deepened poverty in the midst of plenty!”

The following excerpt is also from another article titled, ‘#Nigeria: Stop treasury bills scam’ (January 5, 2015):

“The question then, is why do the authorities persist in this macabre emasculation of our economy? It is difficult to suggest that our economic management team is ignorant of the failure of its policies to drive inclusive economic growth! Surely, the evidence of failure is also clearly mirrored in our stubbornly famished industrial landscape, where consumer demand is stringently capped by an average inflation rate of about 8 percent.

“Sadly, the way things are, we may never witness below three per cent, best practice inflation and monetary policy rates, that are characteristic in economies where genuine economic growth and vastly enhanced social welfare exist. Our government has consistently, inexplicably, sustained an obtuse liquidity management strategy that will ultimately propel our economy into a tail spin with considerable adverse consequences for everyone.

“Unfortunately, we are all helpless victims of this brazen scam, and so long as any government sustains such distortional and oppressive strategy for managing money supply, there is clearly no possibility that Nigerians will ever be redeemed from economic bondage; fortunately, politicians and critics cannot suggest that any public declaration of opposition to the Treasury Bills scam has any ethnic, religious, political or cabalistic colourations.

“Who will save Nigerians from the scourge of excess liquidity and the unceasing liberal looting of the treasury with auctions of government treasury bills? Instructively, however, the allocation of dollar denominated revenue with dollar certificates will eliminate or minimise the destabilising economic and social burden of eternally mopping up surplus naira, and will also support inclusive economic growth in place of deepening poverty”.

Fast forward to May 2017: Excess liquidity remains untamed, with over N2tn already mopped up by April 2017; inflation approaches 20 per cent, with cost of funds stable between 20-30 per cent; naira trades between N305-N400=$1, while unemployment continues to rise; yet, banks primarily will laugh to their vaults with over N700bn interest and service charges from government borrowings, at a time when over 40 per cent of our aggregate annual income will be gulped up by debt service charges. Punch

  • Save the naira, save Nigerians.

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