ECONOMY: BUHARI AND CBN PULLING APART

The National Assembly approved the 2016 Appropriation Bill, just a day before recess, on the Wednesday 23rd of March; the approval was a fulfillment of the Appropriation Committees’ promise to do the needful before the Easter break.

However, the Senate Appropriation Committee’s Chairman, Danjuma Goje, acknowledged that the three months delay before implementation could have been avoided if the Budget was presented to the Legislature in good time. 

Nevertheless, some political leaders and financial experts and analysts have encouraged public perception that, once the budget is passed, the pressure from the present challenging economic environment would begin to diffuse. 

Nevertheless, although Buhari’s 2016 budget may indeed be the highest ever, fiscal plan by any administration, in nominal terms; however, the 2013 N4.98tn budget with the prevailing exchange rate of N160=$1 may actually be worth more in real terms. Thus, optical nominal escalation of budgets will not guarantee more social dividends if further Naira devaluation occurs. 

So, ultimately, what are the assurances that the 2016 budget would succeed where others failed? Indeed, if truth be told, the early signals do not inspire much hope; arguably, no appropriation bill, in our history, has so embarrassed the sponsor as this year’s plan.

Curiously, the National Assembly obviously also saw nothing wrong in approving a budget, in which about N500bn (i.e. 8%) is set aside as intervention funds, without a clear strategic expenditure plan that will guide accountability, transparency and efficiency in the disbursement of funds. 

It is equally worrisome, that despite the collapse of crude oil prices and the troubling reality that we presently require 35kobo out of every Naira income to service existing debts, the Legislators paid little regard to endorsing substantial additional loans despite the oppressive interest rates required to fund the N2.2tn projected deficit. 

Conversely, Buhari would have demonstrated an appropriate patriotic presidential concern that generations to come will not become shackled by a crippling debt burden, if the 2016 projected deficit can be funded with the alleged, substantial recovered looted funds and the reported surplus funds consolidated from operating the Treasury Single Account, rather than the adoption of further debt accumulation to finance the deficit.

It is also bewildering nonetheless, that inspite of the several contentious issues surrounding the integrity of the 2016 bill, the National Assembly, only felt compelled, after presumed, diligent consideration, to reduce only N17bn from the liberal N6.08tn initially projected in Buhari’s plan. Nonetheless, the high expenditure projection of N6.08tn has been lauded as a reflationary budget, inexplicably, at a time inflation is rising uncomfortably beyond 11%, i.e. well beyond CBN’s target of 9%, and certainly miles away from best practice rates below 2%, in successful economies everywhere.

Its assumes that Nigeria’s economic downturn is the product of acute shortage of money; thus, making much more money available for spending should expectedly stimulate economic activity and create more jobs. Ironically, however, the CBN as the sole author of money supply in Nigeria, would beg to differ on this issue of the allegedly benign impact of excess money supply.

Infact for decades, the CBN has engaged in an unending battle to reduce excess money supply from the system. Evidently, systemic excess money supply is actually the number one enemy against the achievement of CBN’s core mandate to ensure that the general price level does not rise above 2% annually, while cost of funds would also be kept at levels that would encourage and support boisterous inclusive economy.

on March 22nd, a day just or so before the Legislature’s approval of budget 2016. Consequently, CBN raised the cost at which it would lend to commercial banks from 11% to 12%, and similarly raised the percentage of customers’ deposits that the banks must keep as reserves with the apex bank from 20% to 22%. The object of these directives, is obviously to instigate commercial banks to also raise their interest rates on loans to their own customers; similarly, the increase in cash reserve ratio is also designed to reduce the amount of funds that banks can lend out to customers.

So in a rather farcical twist, while Buhari is being commended for proposing to spend big in order to stimulate consumption and build infrastructures, the CBN, which alternately manages money supply and monetary policy is busy restricting access to loanable funds and infact ensuring that all borrowers, including the real sector, will become discouraged from seeking loans, when for example, it costs over 20% to Paradoxically, in order to compensate for this fauxpas, the CBN usually responds by compulsively creating and injecting intervention funds to special sectors.

Regrettably, these intervention funds further compound an already excess money supply, and therefore inadvertently also instigate further inflationary push, which the CBN would again respond to by increasing its rate of borrowing with Treasury Bills, despite the attendant high interest paid on these idle deposits.

Ultimately, with Buhari and the CBN’s best intentions, the harsh economic times may remain for sometime.

The National Assembly approved the 2016 Appropriation Bill, just a day before recess, on the Wednesday 23rd of March; the approval was a fulfillment of the Appropriation Committees’ promise to do the needful before the Easter break.

Read more at: http://www.vanguardngr.com/2016/03/economy-buhari-cbn-pulling-apart/

The National Assembly approved the 2016 Appropriation Bill, just a day before recess, on the Wednesday 23rd of March; the approval was a fulfillment of the Appropriation Committees’ promise to do the needful before the Easter break. However, the Senate Appropriation Committee’s Chairman, Danjuma Goje, acknowledged that the three months delay before implementation could have been avoided if the Budget was presented to the Legislature in good time.

Read more at: http://www.vanguardngr.com/2016/03/economy-buhari-cbn-pulling-apart/

The National Assembly approved the 2016 Appropriation Bill, just a day before recess, on the Wednesday 23rd of March; the approval was a fulfillment of the Appropriation Committees’ promise to do the needful before the Easter break. However, the Senate Appropriation Committee’s Chairman, Danjuma Goje, acknowledged that the three months delay before implementation could have been avoided if the Budget was presented to the Legislature in good time.

Read more at: http://www.vanguardngr.com/2016/03/economy-buhari-cbn-pulling-apart/

The National Assembly approved the 2016 Appropriation Bill, just a day before recess, on the Wednesday 23rd of March; the approval was a fulfillment of the Appropriation Committees’ promise to do the needful before the Easter break. However, the Senate Appropriation Committee’s Chairman, Danjuma Goje, acknowledged that the three months delay before implementation could have been avoided if the Budget was presented to the Legislature in good time.

Read more at: http://www.vanguardngr.com/2016/03/economy-buhari-cbn-pulling-apart/