“Is Poverty the Ultimate Reward for Pension Contributors?” was republished in this column last week. The essay emphasizes how mismanagement, inflation, and unresolved structural concerns have prevented Nigeria’s pension reforms from shielding seniors from poverty. (For this series and further essays by the late Sir Henry Boyo, visit www.betternigerianow.com.)
The long-standing and expensive practice of Nigeria’s government borrowing its own money from banks at double-digit interest rates, which enriches banks for doing nothing while impeding growth, is exposed in this week’s republication. This faulty system, which is driven by bad policy, corruption, and misaligned priorities, is making inflation, unemployment, and poverty worse in spite of changes and directives. Under the pretense of monetary management, the CBN’s policies have made Nigeria’s economic problems worse rather than better.
Remember the article’s year of publication (2013) while you read it, noting past occurrences or rates. This makes it quite evident that Nigeria’s economic status has not improved despite all this time.
It is terrible enough to ever have to repay a loan, but our Central Bank’s long-standing practice of doing so at rates ranging from 13 to 14%, as recently acknowledged by Governor Lamido Sanusi, can only be characterized as a regrettable moral hazard that could lead to economic sabotage.
Alhaji Sulaiman Barau, the CBN’s deputy governor, confirmed Sanusi’s assessment that by June 2013, the three levels of government had nearly N2.384 trillion in zero-interest accounts held in commercial banks. Despite our economic and infrastructure losses, banks may have benefited from a bonanza of over N3000 billion for doing nothing over the past ten years, according to Barau, who also disclosed that such liquidity prompted government borrowing and may have already increased bank profitability by roughly N300 billion, even when they contributed no value to the economy! Even worse, in order to regulate the surplus cash supply in the economy, the apex bank simply kept the borrowed funds dormant (sterilized) despite the high cost of service!
Because storing free government cash was an easy way to make money, marketing tactics were created that included setting high goals for delicious young women in little clothes, known as relationship officers, to use as foot troops to draw deposits! Naturally, MDA budgeted projects and salaries were purposefully postponed in order for public officials to get off-the-record payments from those banks that retained free government funding.
Therefore, it is clear that Sanusi’s new directive requiring banks to maintain 50% of government deposits dormant as reserves is an attempt to stop the government’s blatant fraud and foolishness of borrowing back its own funds at exorbitant charges!
The Debt Management Office and the CBN have subsequently borrowed over N300 billion through Treasury bills and bonds, while also disbursing over N200 billion to the same banks to redeem such matured government debts, thus there hasn’t been any improvement since the CBN’s directive! Additionally, while the naira exchange rate has ironically been under a lot of downward pressure, the average cost of financing to the real sector has also increased above 25%!
The recent addition of the accounts of MDAs like NNPC, Customs, and the Federal Inland Revenue Service to the 50% Cash Reserve Requirement will not accomplish anything significant and may even work against the country’s interests. This is because further reduction of the current cash surplus will only result in higher funding costs, which will raise unemployment rates and worsen the effects of ravaging inflation on the poor.
It is inexplicable that the National Assembly and the Federal Executive seem unconcerned by this oppressive situation, but even worse is the insensitivity of the experts in CBN’s Monetary Policy Committee and civil society, which includes Nigerians of high intelligence around the world, to the apparent fraud of the government borrowing back its own funds at absurdly high interest rates for more than 30 years! It is likely a bad euphemism of a more heinous crime of economic sabotage to call such careless handling of public cash fraud!
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For instance, how does one explain the CBN’s odd decision to keep the Cash Reserve Ratio (CRR) for all deposits, including government deposits, at 1% in 2009 despite the fact that the banks held hundreds of billions of naira in government-free funds? The CBN then went on to mop up the resulting cash surplus by forcing the government to borrow heavily from the same banks at double-digit interest rates!
It’s interesting to note that the CBN whimsically attributes its own failure to reduce single-digit interest rates and inflation to excessive government spending! On the other hand, in any country where mass unemployment is a problem, increasing government spending is the best way to generate demand, industrial activity, and job possibilities.
As an aside, the August 28 editorial in the Guardian newspaper notes that “Where then is the touted public sector dominance if public sector deposits in June 2013 comprised 20% of the N15 trillion bank deposit base?” Therefore, the writer correctly concluded that “The bank has a maximum lending capacity of N96 trillion with a further N12 trillion in private deposits (with CRR at 12%).”
Whether or not one agrees with this explanation is irrelevant; the fact remains that when CBN takes our dollar earnings and replaces them with monthly naira allocations, it creates an onerous load of surplus cash in the economy. Because of this, the CBN’s so-called “own dollar reserves” rise in tandem with naira liquidity, which encourages the government to re-borrow its own money at exorbitant rates in an effort to curb the rate of inflation. Since foreign reserves are separate from a country’s consolidated revenue source, it is uncommon for any central bank to claim them!
Although Sanusi inherited and continued this deceptive monetary policy management ploy, this repressive system still leaves plenty of opportunity for unethical enrichment in public money administration. Fuel subsidy payments and the peculiar practice of the government borrowing its own funds at exorbitant interest rates, for instance, cost our country more than N2 trillion a year without adding any value! As long as we all close our eyes, our extreme industrial and economic hardships will undoubtedly persist, and CBN’s monetary policies will continue to make us poorer even as its own reserves grow.
Strangely, the same kind of economic sabotage can also be seen in the way that annual budgets purposefully understate projected revenue using extremely conservative crude export price/output benchmarks, necessitating significant government borrowing to cover the “ghost” deficits that are purposefully created! The fact that existing so-called surplus or excess public monies are kept in zero-interest accounts while the government continues to accumulate excessive debt at exorbitant interest rates to cover the imaginary deficits is of no significance to our skilled economic managers!
