Forex Accruals: Finally, State Governors Remove Theirblinkers!!

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“The 36 State Governors intend to demand that “theirstates’ share andthose of the local governments from the Federation account” revenue accruals bedistributed in the selfsame currency collected. That intentionis borne out ofdissatisfaction with net Federation Account (FA) oil exportproceeds madeavailable for distribution among beneficiaries, after theunilateral deductionsby NNPC of amounts to offset self-styled petrol priceunder-recovery. (GuardianNewspaper Editorial of October28, 2019, titled “Pay Federation Account Oil Accruals indollars”).

It is remarkable thatthe StateGovernors, remained, unexpectedly, blind-sided, for so long tothis ‘opportunity’ for equity in allocation of forex revenue;nonetheless, thepresent demand, may have been compelled by increasing fiscalpressures, and thecrying need to remediate a huge social and infrastructuraldeficit, with the Naira’ssteadily depleting purchasing power.

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

Similarly, Uche Olowu,President,Chartered Institute of Bankers (CIBN) also described theGovernor’s move “asunpatriotic and unhealthy for the economy,” particularly, “whendollar is notlegal tender in Nigeria.” Some other critics have, ironically,also suggestedthat, if the Governors receive dollar allocations, “there wouldbe more serioussystemic challenges, if the economy becomes awash with dollars!”

In contrast, those insupport of theGovernors’ initiative, see the demand as legitimate, andcertainly rational,especially, when a wide difference, also, exists betweenofficial and OpenMarket dollar rates. Consequently, another financial expert,therefore, observed,that if he was in the Governors’ shoes, “I will also ask for mydollar andexchange to Naira at N360 plus, rather than be shortchanged byCBN with N305!”

Notwithstanding thedivergent opinions,the question must ultimately, be which payment model is actuallybacked by ourpresent laws? The answer, is probably inferred in Section 162 ofthe 1999Constitution, (as amended), which states categorically, that,with theexception of the proceeds from the income tax of Security andForeign serviceofficials, “the Federation shallmaintain a specialaccount to be called ‘the Federation Account’ into which shallbe paid All (other)revenues collected by theGovernment of the Federation...”

Clearly,nothing in theabove passage, suggests that CBN has a constitutional mandate,to substituteNaira at its own unilaterally, determined exchange rate, forfiscal allocationsof dollar denominated revenue! Indeed, it would be abnormal if  the law permits everycitizen, (personal orcorporate) to operate a Domiciliary Account for their personalor company’sexport earnings, from which they can draw, at will, while theformally constitutedauthority of a whole State or Local Government, cannot enjoy thesame facility,in a presumed federally structured Government!

It istherefore, inexplicable,that the same dollars, denied to State Governments, who arebonafide owners ofthe dollars, are, conversely, allocated to thousands ofBureau-De-Changenationwide, despite suggestions, that such allocations primarilyfund wholesalemoney laundering and facilitate corruption. It is equallydisturbing that, CBN,as Custodian of Government’s Foreign Reserves, continues toprint and createhundreds of billions of increasingly worthless Naira, assubstitute for actual dollarallocations to constitutional beneficiaries. This odiouspayments process isclearly, inequitable and, certainly oppressive of the Nairaexchange rate, asthe contrived, modest, dollar sums auctioned, weekly, from CBN’s ‘captured’ cachéof dollar reserves are readily ‘swallowed up’ by the ‘eternal’ presence of,excess Naira supply, present in the system. Incidentally, CBN,does not denythat the challenge of systemic surplus money supply, in themoney market, isactually the product of the bloated Naira sums, paid, with aunilaterallydetermined weaker exchange rate, in order to transfer therightful ownership ofthe dollar revenue of the three tiers of government to CBN;invariably, the trillionsof Naira surplus, that result from such exchange, unfortunately,sustainshigher inflation and interest rates, which are clearlycounterproductive to economicgrowth, national development and job creation!

The CBN iscertainly, notunaware of the serious damage that its present foreign exchangepaymentsstrategy, causes in the economy; for example, with this model,the greater thedistributable foreign exchange income, the greater also would bethe challengeof excess money supply and inflation, and the weaker ultimately,would be theNaira exchange rate, when contrived dollar rations are pitched,in weeklyauctions, against an extremely huge Naira surplus, which isdeliberatelycreated by the unilateral substitution of Naira fordistributable dollar incomeby CBN.

TheGovernment’s Vision20:2020 document clearly recognised the disruption caused by thepoisonousimpact of the present payments system, which is, certainlyagainst the earliercited provisions in Section 162 of the 1999 Constitution. Forexample, Section1 of Vision 20:2020 Monetary Policy Thrust statement,instructively, reads asfollows: “Dealing with the EXCESS LIQUIDITYCHALLENGE requiresinnovative approaches, in view of the source of the problem (i.e. Nairasubstitution for dollarallocations). Onepotentially ENDURINGSOLUTION, which would avoid the CREATION OF NEW MONEY andBOOST THE NAIRA VALUEin the foreign exchange market, RELATES TO THE ALLOCATION OFFOREIGN EXCHANGEEARNED FROM OIL TO THE THREE TIERS OF GOVERNMENT RATHER THANMONETISING IT(read as Naira substitution). However,according to the 2020 Visioniers, “thissolution, (of dollar allocations) maybe a recipe for capital flight”; consequently, theVisioniers therefore, recommendedthat, if Naira liquiditysurpluspersists, (with thesustainedpractice of monthly substitution of Naira for dollarallocations) theCentral Bank would need to develop itscapacity for LIQUIDITY FORECASTING AND PROGRAMMING.”

Well, the sad realitysince 2006, isthat, CBN’s Monetary Management still lacks the requiredcapacity for liquidityforecasting and programming, and it is therefore, no surprise,that Nigeria’seconomy has become significantly dysfunctional, as lowersingle-digit inflationwhich predicate internal price stability (which is CBN’s PrimeMandate), haveinstead remained, uncomfortably, above 10 per cent for severalyears, whileNaira rate, has conversely lost over 50 per cent of its crossrate against thedollar, even when dollar revenue sometimes exceededexpectations!

The abiding fear ofcritics of theGovernors’ demand, is that dollar allocations will facilitatecapital flightand currency trafficking, and allegedly, further disrupt andweaken Nigeria’seconomy. However, if the Monetary Authorities remain in denialof thedestructive and oppressive consequences of its, unilateral,monthlysubstitution of Naira for dollar denominated allocations,Nigeria will remain apoor country, as weaker Naira rates with higher inflation rates,and highercost of borrowing, will combine to reduce consumer demand andrestraininvestment in productive sectors and ultimately challenge anypossibility of expandingemployment opportunities and inevitably diminish any prospect ofimpactfuleconomic growth.

Conversely, theadoption of the StateGovernors’ demand for forex allocations is not onlyconstitutionally compliant,but is actually also the critical safety net for arresting thecontinuousfreefall of our economy, on condition, however, that the dollarallocations areeffected with the instrument of negotiable dollar certificates,rather thanoutright cash deposits, which, will clearly, fast track moneylaundering and hugedollar outflows from Nigeria.

Notably, the adoptionof dollarallocations, instead of unilateral Naira substitution, willimmediately mop upand gradually eliminate the seemingly eternal ‘curse’ of excessmoney supplythat distorts those critical monetary indices, that arenecessary tosuccessfully drive growth.

In its place, hundredsof billions ofNaira interest changes, that are compulsively paid annually, tobanks, by CBNto reduce and manage the usual excess money supply created byNairasubstitution, will become savings instead, while the, erstwhile,elusive, butcritically supportive, below 3 per cent inflation rate, withabout 5 per cent averagecost of borrowing and a strong and stable Naira exchange rate,will steadilyevolve, to effectively propel our drive for rapid and inclusiveeconomic growth,that will ultimately, transform the life of every Nigerian,significantly.