Soludo: Redundant Cash in TSA Not Healthy for Economy

Counsels Buhari to remove fuel subsidy, privatise refineries Says country has reverted to import licence regime FG, states to share $150m NLNG proceeds, $250m transferred to SWF Governors lament inability to pay minimum wage

As government agencies start to settle down to the loss of financial autonomy, a lifeline may have been thrown their way, with the recommendation by a former Central Bank of Nigeria (CBN) Governor, Prof. Chukwuma Soludo against leaving huge amounts of idle cash in the CBN at a time the economy is in desperate need of stimulation.

Soludo, who is the promoter of the African Heritage Institution (AfriHeritage), Enugu, gave the advice in a 21-page paper titled: “Can a New Buharinomics Save Nigeria?” which he delivered at the third anniversary lecture of the Real News magazine in Lagos yesterday.

The former Anambra State gubernatorial aspirant said: “The Treasury Single Account (TSA) is a great initiative, and I congratulate President Muhammadu Buhari for that. However, we don’t have to return to the past of having every penny of government lying largely redundant in the central bank.”

He pointed out that in an economy desperately in need of stimulation, piling up idle cash at the CBN was not sound economics, just as he advised that the government should deploy technology and transparent rules to implement a hub and spoke model of TSA whereby CBN is the hub while the commercial banks remain the spoke.

“Of course there are some benefits of keeping it at CBN, including possible anti-corruption outcomes but as a proverb says, you don’t set your house ablaze because of the irritation of a rat in the house. We can rid the system of corruption and realise all the benefits of TSA but still not starve the economy of the necessary liquidity,” he said.

Also speaking on the retention of the fuel subsidy regime, Soludo stated Buhari has the “moral authority and legitimacy” to quickly remove fuel subsidy and privatise the country’s refineries.

His recommendation came on the heels of the N465.6 billion supplementary budget submitted by Buhari to the National Assembly on Wednesday, of which subsidy for fuel put at N413.4 billion, accounted for 80 per cent of the budget.

It also came just as the 36 state governors decried the state of the economy, complaining that they could no longer afford to pay the N18,000 minimum wage.

He said the fundamental case against subsidy removal was not economic, arguing that a lot of the citizens do not trust government to optimise the use of the proceeds for their welfare.

“If Buhari does not deal with these issues NOW, I wonder when, if ever. Now that private refineries are coming up, it is time to privatise public ones. It should have been done years ago. The huge benefits are not only economic, but also an anti-corruption move.

“Let government produce a credible agenda of reforms for the sector and let us have another focused public debate on this subject.

“You may be amazed that even the so-called ‘man in the street’ now understands that it no longer makes sense. The fiscal cost of keeping it is unjustifiable and unsustainable,” he said.

Soludo also counselled against the establishment of a national carrier in the face of meagre resources that should be deployed for critical infrastructure.

He said: “Second, one hopes that the report in the media about plans to resuscitate the moribund Nigerian Airways is not true.

“One thing the economy cannot afford at this time of crisis is to invest scarce resources on prestige or white elephant projects when most federal highways are not motorable (certainly none in the South-east is motorable) or when we need to be investing tens of billions of dollars per annum on critical infrastructure.”

The former CBN governor also advised the federal government to maintain the independence of the central bank in order to retain its credibility and confidence of the markets.

He said: “Another minor point relates to communication and body language that jolts the market and undermines confidence in the monetary and financial system. When it was widely publicised on two different occasions within three months that ‘presidency directs central bank to…’, it got many players in the economy seriously worried.

“For sure, central bank is not a government unto itself, and despite the statutory ‘autonomy’ or ‘independence’ of the Bank, it must work closely with the presidency and economic agencies to coordinate macroeconomic policy.

“Everyone knows that the central bank or INEC cannot survive without the support and active collaboration with the presidency but no one wants to hear that the president has directed INEC on how to conduct an election.

“There is a reason the APC promised in its manifesto to ensure CBN independence. A central reason is to give the market confidence that the CBN will always act professionally and independently to ensure price and financial stability.

“It is to avoid the Africa’s Idi Amin phenomenon whereby the government of the day may ‘direct’ the central bank to ‘print’ money or to take other steps injurious to the economy because it wants to retain power.

“When the market knows or believes that the central bank is merely an extension of the presidency and takes daily ‘directives’ from there, the Bank loses credibility and its monetary policy committee meetings become meaningless. My fear is the precedence: we can never imagine how far future presidents can go in ‘directing’ the central bank on what to do with our commonwealth.”

Also commenting on the country’s exchange rate strategy, the former CBN governor said: “For the better part of this year, the external shocks to the economy have been complicated or accentuated by a gamut of the 'tried and failed' command and control policy regime: de facto fixed exchange rate, largely fixed CBN monetary policy rate, crude capital controls, veiled form of import bans through a long list of ‘ineligible for foreign exchange’, de facto scrapping of domiciliary account established by law, etc.

“At first, I thought this was the usual kneejerk response of policymakers to a ‘sudden’ shock. We tried a milder variant of this for a few months during the 2008/2009 unexpected/unprecedented global financial crisis (with global liquidity squeeze and massive capital flight) but even then, it was communicated as a ‘short-term crisis response’ and it was quickly dismantled.

“We now know what works and what doesn’t even at a time of crisis. As one reads the confusing statements from government in the media: ‘we won’t devalue’, ‘we won’t devalue for now’, and the emotional debate about ‘nationalism’ around issues of import ‘bans’ and capital controls, one wonders whether it is still a ‘short-term crisis response’ or a permanent shift back to the old policy regime of pre-1986.

“Even if the government initially intended it as a short-term measure, interest groups have emerged and are lobbying to make the policy shift permanent. To add to the confusion, the policy is communicated as a 'directive' from Buhari as widely publicised in the media. Really?

“Unfortunately, the debate around the issue has been wrongly trivialised as whether to ‘devalue’ or ‘not to devalue’ the naira. Much of what I have read have little basis in theory or empirical evidence or even counterfactual analysis but a rehash of the sterile but polemical diatribe between ‘neo-liberals’ and ‘neo-socialists’, or simply selective partial analysis. This is not helpful and diverts attention from an otherwise serious policy issue.”

He warned that the country was back to a form of import licensing regime, saying that “portfolio carrying agents” are back in town to lobby for forex.

According to him, while the arbitrary list of banned items had left the economy haemorrhaging, those reaping the rents had been lobbying to “make their gains permanent, while others are lobbying to join the new rent industry”.

“Oil rent is drying up and the new source of easy money is forex. With a black market premium of about 20 per cent a successful round-trip creates instant jackpot. Furthermore, if a group can get items in their sector ‘banned’, they will reap the monopoly rent instantly.

“If you stretch the logic of the ‘ban’, it will be difficult to justify allocation of forex for anything. After all, you can argue that denial of forex should ‘force’ Nigerians to produce just any good for that matter at home or patronise substitutes,” he said.

Soludo’s recommendations came just as the three tiers of government agreed to share $150 million (N29.5 billion) out of the $400 million (N78.8 billion) dividend paid by the Nigerian Liquefied Natural Gas (NLNG) company to the Federation Account.

The balance of $250 million was transferred to the Nigerian Sovereign Investment Authority (NSIA), thus raising Nigeria’s savings in her Sovereign Wealth Fund (SWF) to $1.3 billion.

This was disclosed yesterday by Osun State Governor Rauf Aregbesola, who alongside the Minister of Budget and National Planning Udo Udoma and the Enugu State Governor Ifeanyi Ugwuanyi briefed journalists at the end of the National Economic Council (NEC) meeting presided over by Vice-President Yemi Osinbajo (SAN).

Aregbesola said the Accountant General of the Federation told the council that the balance of the Excess Crude Account (ECA) stood at $2.257 billion and not much had changed on the status of the account from the last report.

He said: “On the report of government agencies generating revenues in foreign currency but remitting the naira equivalent into the Federation Account, the council mandated the Ministry of Finance to investigate and report back.

“The Central Bank of Nigeria (CBN) was mandated to embark on sensitisation and public enlightenment on the forex policy and relevant laws and regulations so as to guide traders and some people who encounter challenges regarding the movement of foreign currency across the nation’s borders.

“We understand that some traders particularly in the east encountered challenges at the airports when they tried to go about their business.

“The Managing Director of the Nigerian Sovereign Investment Authority presented the status report on the Sovereign Wealth Fund to the council.

“After due deliberations on the report, the council agreed that $250 million from the $400 million NLNG dividends be invested in the Nigerian Sovereign Investment Authority to increase its capital.

“Council directed the Minister of Finance to constitute an executive nomination committee and work in consultation with NEC to appoint appropriate persons to take over as board members of the NSIA when the current board is dissolved.

“Council resolved that the balance of $150m of the said $400m NLNG funds be shared accordingly in the prescribed formula at the Federation Account Allocation Committee (FAAC).

“The Director General of the National Pension Commission (PENCOM) also briefed the council on the contributory pension scheme’s implementation and status of implementation by the states.

“The highlight of the briefing was on the sustainability of the pension scheme, the scorecard of the states in the implementation of the scheme, the challenges being faced by the states, opportunities and also the steps towards full implementation by the states.

“The briefing also highlighted the need for the states to provide a legal framework such as enacting state pension laws by those which have not done so, establishment of states pension agencies, consistent remittance of both employees and employers' contributions, and also full compliance with all provisions of the pension contributory scheme.”

Aregbesola added that the council discussed the necessity of a workshop on the TSA for state governments.

He said: “The International Monetary Fund (IMF) Senior Resident Representative presented a paper on the TSA to the council.

“Presentations were made on the listed sub-topics: implementation of TSA in states: lessons and experience; cash management and TSA reform: an overview of international practice; and budgeting reforms.”

He said the council also deliberated on the need to reconstitute the members of the governing board of the Niger Delta Power Holding Company (NDPHC) and the vicepresident called for the nomination of new board members to represent the six geo-political zones.

Earlier yesterday morning, the 36 state governors emerged from a meeting of the Nigerian Governors’ Forum (NGF), warning that they could no longer pay the N18,000 minimum wage to workers owing to the poor state of the economy.

The governors said the dwindling price of oil had drastically affected income accruing to the states and their ability to meet their obligations to workers.

They said that the burden of the wage bill was lighter when oil sold at $126 against the current $44 per barrel.

In this regard, they said they would meet with the president on the state of the economy, resolving that the only way out of the quagmire was to diversify the economy to agriculture and mining.

Reading the communiqué of the governors’ meeting, the Chairman of NGF and Governor of Zamfara State Abdulaziz Yari said the forum also backed the Nigerian Communications Commission (NCC) over the N1.04 trillion fine imposed on MTN Nigeria.

According to him, the governors agreed that the fine must be paid in full.

He said they received a comprehensive briefing from the acting Executive Chairman/Chief Executive Officer of NCC, Professor Umar Dambata, who provided insight into why the fine was imposed.

He said: “We resolved that we must look at ways to enhance revenue generation and at the same time look at ways to cut our overhead costs more especially for political office holders’ salaries and other overhead expenses.

“The situation is no longer the same when we were asked to pay N18,000 as minimum wage, when oil price was $126 (per barrel) and then we continue paying N18,000 minimum wage when the oil is $41.

“Yet the source of government expenditure is from oil and we have not seen prospects of oil prices rising in the near future.

“We will diversify our economy in the area of agriculture and mining. But at the same time, we should understand our situation where some states today are taking N100 million take home as monthly allocation and then have salaries of over N2 billion to pay.

“We therefore agreed here to take this suggestion to NEC in our meeting today so that we can find ways to tackle this problem.

“And we are looking at discussing with Mr. President and his team, with governors, technocrats and experts of the economy to see how we can tackle our troubled situation. We are working harder to deal with it.”

He said the governors also commended NCC for its strict compliance and enforcement of the law in its regulation of the telecom sector, and urged the federal government to expedite action in compelling MTN to pay the fine.

NCC imposed the levy on MTN for failing to meet a deadline to disconnect 5.2 million unregistered subscribers earlier this year.

• See full lecture delivered by Prof. Chukwuma Soludo at thisdaylive.com