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Forex Accruals: Finally, State Governments Remove Their Blinkers, By Henry Boyo

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“The 36 State Governors intend to demand that “their states’ share and those of the local governments from the Federation account” revenue accruals be distributed in the selfsame currency collected. That intention is borne out of dissatisfaction with net Federation Account (FA) oil export proceeds made available for distribution among beneficiaries, after the unilateral deductions by NNPC of amounts to offset self-styled petrol price under-recovery. (Guardian Newspaper Editorial of October 28, 2019, titled “Pay Federation Account Oil Accruals in dollars”).

It is remarkable that the State Governors, remained, unexpectedly, blind-sided, for so long to this ‘opportunity’ for equity in allocation of forex revenue; nonetheless, the present demand, may have been compelled by increasing fiscal pressures, and the crying need to remediate a huge social and infrastructural deficit, with the Naira’s steadily depleting purchasing power.

Not everyone, however, supports the Governors’ payments initiative; for example, Dr. Baba Musa, Director General of West African Institute for Financial and Economic Management (WAIFEM), reportedly, noted, in October 2019 that, “the Governor’s demand was uncalled for as the country does not operate dual currencies.”

Similarly, Uche Olowu, President, Chartered Institute of Bankers (CIBN) also described the Governor’s move “as unpatriotic and unhealthy for the economy,” particularly, “when dollar is not legal tender in Nigeria.” Some other critics have, ironically, also suggested that, if the Governors receive dollar allocations, “there would be more serious systemic challenges, if the economy becomes awash with dollars!”

In contrast, those in support of the Governors’ initiative, see the demand as legitimate, and certainly rational, especially, when a wide difference, also, exists between official and Open Market dollar rates. Consequently, another financial expert, therefore, observed, that if he was in the Governors’ shoes, “I will also ask for my dollar and exchange to Naira at N360 plus, rather than be shortchanged by CBN with N305!”

Notwithstanding the divergent opinions, the question must ultimately, be which payment model is actually backed by our present laws? The answer, is probably inferred in Section 162 of the 1999 Constitution, (as amended), which states categorically, that, with the exception of the proceeds from the income tax of Security and Foreign service officials, “the Federation shall maintain a special account to be called ‘the Federation Account’ into which shall be paid All (other) revenues collected by the Government of the Federation…”

Clearly, nothing in the above passage, suggests that CBN has a constitutional mandate, to substitute Naira at its own unilaterally, determined exchange rate, for fiscal allocations of dollar denominated revenue! Indeed, it would be abnormal if  the law permits every citizen, (personal or corporate) to operate a Domiciliary Account for their personal or company’s export earnings, from which they can draw, at will, while the formally constituted authority of a whole State or Local Government, cannot enjoy the same facility, in a presumed federally structured Government!

It is therefore, inexplicable, that the same dollars, denied to State Governments, who are bonafide owners of the dollars, are, conversely, allocated to thousands of Bureau-De-Change nationwide, despite suggestions, that such allocations primarily fund wholesale money laundering and facilitate corruption. It is equally disturbing that, CBN, as Custodian of Government’s Foreign Reserves, continues to print and create hundreds of billions of increasingly worthless Naira, as substitute for actual dollar allocations to constitutional beneficiaries. This odious payments process is clearly, inequitable and, certainly oppressive of the Naira exchange rate, as the contrived, modest, dollar sums auctioned, weekly, from CBN’s ‘captured’ caché of dollar reserves are readily ‘swallowed up’ by the ‘eternal’ presence of, excess Naira supply, present in the system. Incidentally, CBN, does not deny that the challenge of systemic surplus money supply, in the money market, is actually the product of the bloated Naira sums, paid, with a unilaterally determined weaker exchange rate, in order to transfer the rightful ownership of the dollar revenue of the three tiers of government to CBN; invariably, the trillions of Naira surplus, that result from such exchange, unfortunately, sustains higher inflation and interest rates, which are clearly counterproductive to economic growth, national development and job creation!

The CBN is certainly, not unaware of the serious damage that its present foreign exchange payments strategy, causes in the economy; for example, with this model, the greater the distributable foreign exchange income, the greater also would be the challenge of excess money supply and inflation, and the weaker ultimately, would be the Naira exchange rate, when contrived dollar rations are pitched, in weekly auctions, against an extremely huge Naira surplus, which is deliberately created by the unilateral substitution of Naira for distributable dollar income by CBN.

The Government’s Vision 20:2020 document clearly recognised the disruption caused by the poisonous impact of the present payments system, which is, certainly against the earlier cited provisions in Section 162 of the 1999 Constitution. For example, Section 1 of Vision 20:2020 Monetary Policy Thrust statement, instructively, reads as follows: “Dealing with the EXCESS LIQUIDITY CHALLENGE requires innovative approaches, in view of the source of the problem (i.e. Naira substitution for dollar allocations). One potentially ENDURING SOLUTION, which would avoid the CREATION OF NEW MONEY and BOOST THE NAIRA VALUE in the foreign exchange market, RELATES TO THE ALLOCATION OF FOREIGN EXCHANGE EARNED FROM OIL TO THE THREE TIERS OF GOVERNMENT RATHER THAN MONETISING IT (read as Naira substitution).However, according to the 2020 Visioniers, “this solution, (of dollar allocations) may be a recipe for capital flight”; consequently, the Visioniers therefore, recommended that, if Naira liquidity surplus persists, (with the sustained practice of monthly substitution of Naira for dollar allocations) the Central Bank would need to develop its capacity for LIQUIDITY FORECASTING AND PROGRAMMING.”

Well, the sad reality since 2006, is that, CBN’s Monetary Management still lacks the required capacity for liquidity forecasting and programming, and it is therefore, no surprise, that Nigeria’s economy has become significantly dysfunctional, as lower single-digit inflation which predicate internal price stability (which is CBN’s Prime Mandate), have instead remained, uncomfortably, above 10 per cent for several years, while Naira rate, has conversely lost over 50 per cent of its cross rate against the dollar, even when dollar revenue sometimes exceeded expectations!

The abiding fear of critics of the Governors’ demand, is that dollar allocations will facilitate capital flight and currency trafficking, and allegedly, further disrupt and weaken Nigeria’s economy. However, if the Monetary Authorities remain in denial of the destructive and oppressive consequences of its, unilateral, monthly substitution of Naira for dollar denominated allocations, Nigeria will remain a poor country, as weaker Naira rates with higher inflation rates, and higher cost of borrowing, will combine to reduce consumer demand and restrain investment in productive sectors and ultimately challenge any possibility of expanding employment opportunities and inevitably diminish any prospect of impactful economic growth.

Conversely, the adoption of the State Governors’ demand for forex allocations is not only constitutionally compliant, but is actually also the critical safety net for arresting the continuous freefall of our economy, on condition, however, that the dollar allocations are effected with the instrument of negotiable dollar certificates, rather than outright cash deposits, which, will clearly, fast track money laundering and huge dollar outflows from Nigeria.

Notably, the adoption of dollar allocations, instead of unilateral Naira substitution, will immediately mop up and gradually eliminate the seemingly eternal ‘curse’ of excess money supply that distorts those critical monetary indices, that are necessary to successfully drive growth.

In its place, hundreds of billions of Naira interest changes, that are compulsively paid annually, to banks, by CBN to reduce and manage the usual excess money supply created by Naira substitution, will become savings instead, while the, erstwhile, elusive, but critically supportive, below 3 per cent inflation rate, with about 5 per cent average cost of borrowing and a strong and stable Naira exchange rate, will steadily evolve, to effectively propel our drive for rapid and inclusive economic growth, that will ultimately, transform the life of every Nigerian, significantly.

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