Alleged Money Printing: Did Obaseki Goof?
Dodgy counter-positions from the federal government to explain away Governor Godwin Obaseki’s allegation that it printed N60 billion as part of allocation to states for March 2021 hardly illuminate the issue, writes Louis Achi
Although a graduate of Classics, Governor Godwin Obaseki of Edo State is an economist, former investment banker and member of the National Economic Council (NEC). At a public forum recently, he painted a gloomy picture of the Nigerian economy. Speaking at the Edo State Transition Committee stakeholders’ engagement penultimate Thursday, the governor said the economy was imperilled and that the rising debt profile was worrisome as dependence on crude oil was no longer sustainable.
His words: “The current price of crude oil is only a mirage. The major oil companies, who are the ones producing are no longer investing much in oil. Shell is pulling out of Nigeria and Chevron is now one of the world’s largest investors in alternative fuel.
“So, in another year or so, where will we find this money that we go to share in Abuja?…When we got FAAC for March, the federal government printed additional N50-N60 billion to top-up for us to share.”
For good measure, the governor said the federal government must act quickly to end the monetary rascality rather than playing the Ostrich.
In countering Obaseki’s bombshell five days later, first, the Minister of Finance, Budget and National Planning, Zainab Ahmed, daintily dismissed the claim as “untrue”.
According to Ahmed, “The issue that was raised by the Edo State governor for me is very, very sad, because it is not a fact,” and insisted that FAAC allocation was from revenues from different agencies of the federal government.
“What we distribute at FAAC is revenue that is generated and in fact distribution of the revenue is public information. We publish revenue generated by FIRS, the customs and the NNPC and we distribute at FAAC. So, it is not true to say we printed money to distribute at FAAC, it is not true,” she stated.
But, in what seemed more like a tetchy fightback, Governor of the Central Bank of Nigeria (CBN),Godwin Emefiele described Obaseki’s position on printing about N60 billion to shore up March subvention by the Federal Account Allocation Committee (FAAC) as totally inappropriate.
Noted Emefiele: “If you understand the concept of printing of money, it’s about lending money. That is our job. To print is about lending money. So, there is no need of putting up controversy about printing money as if we go into the factory, print the naira and start distributing on the streets.
“What I keep saying is that it will be irresponsible for the CBN or any other federal reserve bank to stand idle and refuse to support its government at this time. And what we are doing here is being done in any clime. At the last MPC meeting, I gave data on what is being done in other climes to shore up their economy and take them out of recession.
“Nigeria is, unfortunately, in a very bad situation, I’m not going to pretend about it. We are facing a problem about productivity output, which is GDP. Luckily, we managed from recession, now we looking at how to get our head above water.”
To defog the Obaseki’s allegation on money printing and distill the essence of the finance minister’s counter position, economist, banker and financial analyst of no mean repute, Bismarck J. Rewane was enlisted.
Rewane, the Managing Director/Chief Executive Officer of Financial Derivatives Company Limited in Lagos, is a Chartered member of the Institute of Bankers of England and Wales and also a Fellow of the Nigerian Institute of Bankers.
Curiously, Rewane left many Nigerians scratching their heads with his coded, ‘fence-sitting’ interpretation of the subject matter: “The difference between what the governor is saying and what the minister is saying is like trying to differentiate between six and half a dozen.”
But if Rewane was being coquettish in grabbing the bull by the horns, other experts of kindred disciplinary plumage were not so hesitant.
Palgrave MacMillan, a think tank, argues that inflation in Nigeria is caused by government’s expansionary fiscal policies, devaluation of the naira and the impact of climate change on the domestic agricultural industry.
Whereas overheads gulp about 70 per cent of government budgetary expenditure, the exchange rate of the naira to the US dollar is N380, going by the usually ignored Central Bank of Nigeria rate, or N485, going by the generally preferred parallel market rate.
Money printing, more technically known as monetisation or “moneyfinanced fiscal programmes” occurs when the government finances itself by issuing non-interest-bearing liabilities. Those liabilities could be currency or they could be reserves that banks hold at their central bank
Financial gurus and economists have warned that Nigeria faces the risk of falling off the fiscal cliff if the federal government continues its reckless reliance on ‘Ways and Means’ to fund its widening deficits.
While every country prints money, the experts are concerned that with an inflation rate that is tending towards 20 per cent and extremely low productive capacity, the economy cannot absorb a reckless money supply expansion.
According to Dr. Bongo Adi, an economist at the Lagos Business School, it is difficult to determine the extent of mess Nigeria’s ‘Ways and Means’ financing has caused as nobody knows the amount printed so far. He, however, warned that the economy cannot bear an unrestrained expansion of the money supply, which he blamed for the current stagflation and associated challenges.
For Prof. Uche Uwaleke, of the Nasarawa State University, Nigeria cannot afford uncontrolled printing of the currency to finance the budget, because the economy cannot absorb it. He insisted that the continuous resort to Ways and Means would worsen inflationary pressure and lead to further depreciation of the naira, because the production capacity is low.
Cut to the bone, the unfolding controversy simply puts Buharinomics on the spot!