CBN’s ‘Money Printing’ Mandate and Obaseki’s Macabre Dance

Solomon John

The jury is still out there, trying to return a verdict on whether Edo State Governor, Mr. Godwin Obaseki’s claim (or was it a disclosure?), that the federal government printed between N50 billion and N60 billion to augment the March allocation shared among the three tiers of government by the Federation Account Allocation Committee (FAAC), was correct. And if it was correct, whether the manner of declassifying the information was borne out of sheer patriotism or, perhaps, out of mischievous resort to playing the devil’s advocate in order to settle some scores (whether old or new).

And, in case, it was outright falsehood, whether Obaseki has gone full circle in deploying propaganda as an art of governance.
Talking about settlement of scores, that would appear to be a pastime of Obaseki.
Read the crux of Obaseki’s submissions that has ruffled feathers in government and private sectors of the economy: “When we got FAAC for March, the Federal Government printed an additional N50-N60 billion to top-up for us to share. This April, we will go to Abuja and share. By the end of this year, our total borrowing is going to be between N15 (trillion) and N16 trillion. Imagine a family that is just borrowing without any means to pay back and nobody is looking at that, everybody is looking at 2023, everybody is blaming Mr President as if he is a magician.”

A careful deconstruction of the above statement shows that Obaseki was deliberately measured in causing a collateral damage to the federal government and the Central Bank of Nigeria. He also did so much disservice to the states and local governments, including himself, albeit minimally. He is enjoying the euphoria of one who has blown the lid off the Pandora Box. He appeared to be smart by half by putting up a feeble defence for the President. Obaseki knows very well, just as many of us do, that magic is not a qualification for the presidency of Nigeria.

Therefore, Nigerians never voted for a magician, and therefore never expected the president to perform magic in the first instance. But Nigerians, who voted for Buhari, believed that they voted for a president who was capacitated enough to provide disciplined and accountable leadership. And at the subnational level, governors had to brace up to meet the same sets of qualifications or criteria for election by the vast majority of the electorate. Governance at the three tiers converges on the popular pedestal of government for the utilitarian good of all.
Therefore, all responsible governments anywhere must strive to defend and support the economic system. In particular, they do this through the intervention by their Central Banks or Federal or Reserve Banks as in the case of the United States of America and other climes. Nigeria is not different. And this was the point the CBN governor, Mr. Godwin Obaseki, made in his riposte to Governor Obaseki’s claim that the federal government printed between N50b and N60b to augment the March federation allocation to the three tiers of government.

I am not an economist. As a layman, my understanding from the mindset of an innocent watcher of the development is that money that is shared is what is earned (what accrues into the Federation Account). Therefore, it is what is earned monthly that is shared. It does not matter whether the amount fluctuates. If that is the case, March 2021 as in all cases, should not be different. If it was N250 billion, for instance, that accrued into the Federation Account, for the month as distributable revenue, that was what the FAAC would share, sancta simplicitas-pure and simple. It would therefore be needless for the federal government, through the Central Bank of Nigeria, to print money to augment what was not earned.

If the CBN finds ways and means to deal with certain economic exigencies, the Federation Allocation certainly does not fall into the category. Except, we are now told that the federal government diverted part of the monthly accrual for March to meet some pressing issues and had to resort to printing money to settle the indebtedness. Otherwise, as the CBN governor had said and I concur, it did not do what Governor Obaseki claimed the Federal Government did. Emefiele had to do some lecturing in Economics and, perhaps, Banking and Finance to reset the perception of many Nigerians who had already run with Obaseki’s somewhat fictive narrative that was not properly contextually explicated.

Emefiele had, for good reasons, accused Obaseki of giving the issue an inappropriate colouration to create a mischief. Read him: “Printing of money is about lending money; that is our job. It is inappropriate to think that printing of money means printing money to distribute in the streets. It is about lending to the government. It is inappropriate for people to give some colorations to the word ‘printing of money’ as if it is a foreign word coming from the sky.” In 2015/2016, the apex bank gave bailout facility to the states to enable them to survive the turbulent economic hardship that was not even as bad as the current situation.

According to Emefiele, “All the loans remain unpaid till now and we are going to insist on the states paying those loans going forward, since they are accusing us of giving them loans, which is what they are saying.” The state governments should have demonstrated utmost good faith. Interestingly, politics has crept into the sage as the APC governors have risen in strong defence of the CBN on this issue. Rivers governor, Nyesom Wike, has lent his voice in support of Governor Obaseki. Politicisation of this issue is not the right way to go. CBN is not the country’s apex bank and not a political party for crying out loud. It is open and accessible to all governments. This is why I consider apposite the CBN governor’s position that the bank would support government when it is cash-strapped.

According to Emefiele: “What I keep saying is that, it will be irresponsible for the Central Bank of Nigeria or any central bank, or any Fed to stand idle and refuse to support its government at this time. And what is being done is being done in any clime.” He continued: “It’s important for me to put it this way that in 2015/16, the kind of situation we found ourselves in, we did provide a budget support facility to all the states of this country. That loan is still unpaid up till now.

We are going to insist on them paying back the money since they are accusing us of giving them loans…. Central Bank will call back loans issued to state governments which could perhaps mean deducting the loans from the monthly Federal Allocations shared between the States and the Federal Government.”

The takeaway: Money is printed by the CBN, but not in the context in which Governor Obaseki has put it. It prints money to lend to government and in playing this role, central banks control the volume, value and circulation of money to ensure there is price stability and inflation is brought under control.

He said it was important that money was printed (or minted) in proportion to the value of the central bank reserve. He had further explained that the reserve, on the other hand, was a function of the value of goods and services produced in the country at any given time, called Gross Domestic Product (GDP).

Read further Obaseki’s explanations that question the intents and purposes of Governor Obaseki in stirring the hornets’ nest: “As the institutional authority with the traditional responsibility of ensuring that financial markets function smoothly and in a stable manner, printing money goes beyond producing or minting currency notes or coins. This is because the central bank has a responsibility to protect businesses from difficulties that could arise from financial or macroeconomic challenges.

“As the authority that monitors and controls the nation’s reserves, the central bank can print money in the proportion of the value of the reserves. It can also print money above the value of the reserves in anticipation of a near-future boost in the value of goods and services to equal the ‘volume’ of money in circulation. This is why the central bank can take measures to mop up excess money in circulation, or to boost money supply when it is considered inadequate. The aim is to ensure price stability.

“In Nigeria, the central bank has been giving the federal government a huge over overdraft to avoid a situation where the government cannot discharge its obligations such as paying salaries. At the beginning of President Muhammadu Buhari-led government, the federal government provided the states with “’bail-outs’ worth billions of Naira to enable them to pay salaries and meet other obligations. The argument was that the drop in the price of oil in the international market in 2014, led to a drastic decline in government revenue which affected the states in the payment of salaries.

“What I keep saying is that, it will be irresponsible for the Central Bank of Nigeria or any central bank, or any Fed to stand idle and refuse to support its government at this time. And what is being done is being done in any clime.”

Indeed, the CBN has undertaken the obligation of pumping more money into the system through these sundry interventions which all the States have not serviced for obvious reasons. Governor Obaseki cannot claim ignorance of this. He cannot say that Edo State is not indebted to the Federal Government. He was sworn in as governor in 2016, when the state’s external debt was $214m. As of December 2020, the debt had risen to $280.3m. And, on the domestic front, Edo’s debt profile had grown to N80.7 billion as of December 2020 up from N46.2 billion as of December 2015, a year before he was sworn in as governor.

So, what was the basis of his pontification about money being printed as if it was an illegality whereas, he and his governor colleagues were largely beneficiaries of the constitutional move by the CBN to shore the state governments up and move them away from economic precipice? Governor Obaseki may have just succeeded in launching himself into the public arena for a danse macabre.
––John writes from