Dr. Boniface Chizea, a seasoned economist and former banker, has contributed significantly to the development of several organisations in the public and private sectors including the Central Bank of Nigeria’s Quality Assurance FSS 2020 project, Federal Ministry of Finance, Niger Delta Development Commission (NDDC), United Nations Development Programme (UNDP).In this interview with Bamidele Famoofo, Chizea takes a holistic look at the performance of the Nigerian economy and going by his assessment, the economy is unimpressively performing, as he alleges that too much attention paid to politics is adversely affecting the fortunes of the economy. Excerpts:
What’s your assessment of impact of CBN’s various intervention funds on the economy?
It is early to assess the full impact of the many intervention funds by the Central Bank even as we can confidently claim that in some areas, the result of such interventions are already manifesting. In this regard, we could be thinking of targeted sectors such as agriculture with the Anchor Borrowers’ Program under which substantial strides have been recorded. Under this regime, the CBN had provided funds to sectors that included Power, Aviation and MSMEs all at single-digit interest rates thereby ameliorating the impact of high interest rates in the economy. No doubt, these intervention funds have salutary effects on the economy as they fully align with the development role of the Central Bank.
What will be the effect of a possible rate hike by CBN on ordinary Nigerians?
Yes, the CBN has mooted the idea of hike in interest rate as it fears heightened inflation due to excessive liquidity, which would be pumped into the economy as election spending intensifies. But I suppose this is a strategy to checkmate those who have been shouting that the MPR, which has been at the same level for over two years, should be reduced to help boost activities in the economy. What the CBN is doing is to cautiously draw attention to the fact that we are not yet out of the woods and therefore it does not consider a move to reduce interest rates a viable move in the current circumstances of the economy. But I should be very surprised, if it should attempt to hike interest in the prevalent circumstances of the economy. We must also recall that interest rate is factor cost, which also impact the level inflation in the economy and therefore to the extent that the Central Bank is able to attain some stability in this regard, to that extent would the Bank be contributing to the management of inflation in the economy.
It’s believed that the declining inflation will reverse with the elections approaching. What’s your view?
The expectation that inflation might increase with the coming elections is real, as more liquidity is injected into the economy particularly from outside the country. This might precipitate demand pull inflation. Therefore this explains the fear by the Central Bank that we must proceed cautiously if the recent gains are not to be reversed.
Would you say the budget implementation has improved in recent times?
No! The way the budget is being handled leaves much to be desired. It also speaks loudly about the lack of seriousness or even lack of full appreciation and understanding of the importance of the budget, which is a veritable blueprint for the management of the economy. Since the onset of this administration, we have never had the budget approved ready for implementation within the first half of the year. Part of the problem has been the tardiness with the preparation of the budget on the part of the Executive. The budget estimates are expected to be ready before the end of the third quarter of the year, i.e. August, but it has often been submitted to the National Assembly in December. And therefore, the expectation of early approval of the budget for implementation becomes unrealistic. Even Budget 2018, which was submitted to the Legislature on an early date of November 7, 2018, with the expectation that the country might have a chance of harmonising the fiscal year with the calendar year, is still a languishing victim of the rancorous relationship between the executive and the legislature. There is the urgent need to work on the approval process of the budget to remove all the rancour that has hallmarked the experience so far. It is possible for the Budget Office of the Federation to interface with the legislature during the preparation process of the budget preparation to ensure that all are carried along. With this approach, may be the rancour, which has characterised budget preparation and approval would be better managed. With the current experience it would be foolhardy expecting that the Nigerian economy would witness a boom. That would happen when all the problems associated with the budget preparation process are resolved.
How do you think the economy has performed?
Nigerian economy has notionally exited recession but not fully recovered from it. As at last count the GDP stood at 1.5 per cent in the second quarter of 2018 year-on-year representing a reduction compared to the first quarter of the year, which was at 1.9 per cent. What would seem to be good news regarding this development is that the contribution of oil to GDP seems to be falling, while that of non-oil sector appears to be holding, showing marginal improvement. It would therefore appear that the much-talked-about dependence on the oil sector, which had so far defined the country’s vulnerability is now waning.
A worrisome aspect of the performance of the economy is the impact of the insurrection across the states of the federation reputed for their prowess in agricultural production as hardly any farm work is now going on as most farmers are now in IDP camps afraid of their lives talk more of going back to the farms. And as the effect of all of this become manifest the country would witness unprecedented food inflation.
Inflation has maintained a downward trend over a period of almost two years now and currently stands at 11.2 per cent still outside the single-digit inflation rate of 6-9 per cent projection by the monetary authorities. This level of inflation is negatively impacting the country’s attempt at income redistribution, while enhancing the misery index in the land. And the relatively high level of inflation has constrained the monetary authorities and left them with no choice but to maintain monetary policy rate (MPR) at a high 14 per cent for over two years now, despite the clamour that the rates should be allowed to fall, to make credit cheaper to contribute to the much desired outcry for the economy to be reflated to impact the burgeoning unemployment figures which currently stands at a dangerous and unsustainable level of 18.8 per cent.
The monetary authorities are logically much more concerned with the attractiveness of the economy particularly to portfolio investors. As the economy is relatively high risk, the returns must be commensurate to ameliorate this condition. But in spite of the determination to sustain the level of returns, the risk factor has considerably worsened due to the uncertainty arising from the pending elections, which is exacerbated by the worsening relationship between the executive and the legislature.
This development had impacted the stock exchange making all the essential indices; market capitalisation and All Share index move in the southwards direction undermining the performance as well as the attractiveness of the market. The foreign exchange rate has held following the efforts of the monetary authorities as they embark on innovative initiatives such as the Investor & Exporter window, which had accounted for substantial inflow of dollar liquidity into the economy as the rates that are prevalent at this market are as agreed by the parties to the transaction. The complaint of multiple exchange rates have continued, but the authorities are mindful, waiting for the most auspicious timing for the merger of the rates, which in any case would be largely driven by market forces.
The deposit money banks in their credit extension has not been able to meet the requirements of commensurate lending to the private sector, which really is the economic engine that has the potential to catalyse growth in the economy. Mindful of this development, a number of initiatives have been embarked upon that includes the decision by the banks after a Bankers’ Committee meeting in 2015 to take equity position in businesses particularly small and medium scale ones and the recent decision that the prudential reserves with the Central Bank representing 22.5 per cent of bank’s deposit base should be made available to banks to create liquidity for targeted lending to SMEs at single-digit interest rates. The Central Bank had also embarked on preferential lending to targeted sectors of the economy such as the Anchor Borrowers’ Programme for agriculture to boost self-sufficiency in rice, millet, maize and sundry related products. Also, funds have been made available at preferential rates for lending to aviation, power etc., as the Central Bank attempts to keep fidelity to its developmental role in the economy.
The banks have also been encouraged by the Central Bank to liberalise the sale of foreign exchange for basic and business allowance to those in need not restricting the sale to only customers that have a bank account with them. And also increased the sale of foreign exchange to Bureau de Change from 2 to 3 times a week to make foreign exchange available to marginal borrowers and increased the limit on international spending from 2,000 to 3,000 dollars for online transactions. It is also expected that the currency swap agreement between the Central Bank and The People’s Bank of China signed on April, 2018 for an amount of $2.5 billion, the equivalent of N15 billion over an initial three-year period should give a boost to trade flows between both countries as the problem of sourcing dollars to transact such businesses is now a thing of the past. A twice weekly auction in this respect has been commenced by the Central Bank commencing from July 31, 2018 at the opening exchange rate of 49 Naira to Yuan.
The growth of the Nigerian economy is undermined by unwholesome attention to politics as election 2019 is anticipated. From all indications, it is fair to conclude that the economy has given scant attention as it is now relegated to the background. This explains why 2018 budget is still in limbo without anyone bothering regarding when it would be approved for the capital budget to be implemented, which should accounts for the desired growth of the economy. We recently celebrated the fact that we have done an unprecedented N1.5 trillion of capital expenditure in 2016, but from recent happenings, it would be a mirage expecting to attain that level of spending on capital projects in 2018. Even the Economic Recovery and Growth plan; the three-year development plan for which recently we were regaled with activities regarding the activation of focus labs remains in limbo.
Some say the current debt structure is unhealthy. What is your take on this?
The increasing debt profile is worrisome more so as it would appear that with the circumstances of the economic development that we have now resorted to borrowing for consumption. Borrowing for consumption is ill advised as it might gradually lead the country back to the debt peonage of recent memory when economic managers spent valuable time hopping from one country to another asking for debt relief and even forgiveness which is not good for the image of the leading Black Country in the world. Available data indicates that under the present government that the debt stock had grown by 90 per cent in the past three years rising from N 12.6 trillion in December, 2015 to N22.71 trillion by March, 2018. It’s no brainer guessing what the monies have been borrowed for. We have borrowed to pay salaries in spite of the backlog of salary arrears in many states of the federation which occasioned the granting of bailout funds by the federal government as the amount on the federation account dwindled as a result of falling price of oil coupled with the country’s inability to produce up to projected capacity due to challenges either from the falling demand for Nigerian oil in the global market place or due to insurrection arising from the activities of militants at the Niger Delta region. Borrowing for consumption amounts to mortgaging the future of succeeding generations.
It is a definite plus to possess the capacity to borrow. There are many countries of the world that do not have such privilege. But if we must borrow, it is advisable to concentrate borrowing for viable capital projects that could be self-liquidating. In this matter we commend the boost in revenue accruing from taxation based on the aggressive activities of the Federal Inland Revenue Service because for well-managed economy tax revenue accounts for recurrent expenditure as opposed to the experience we are currently witnessing in the country where we borrow to pay salaries and petroleum subsidy. There has been talk that the country has the headroom to borrow based on indicative best practice statistics on debt to GDP ratios, but what is of urgent concern is the sustainability of such borrowings when seen in the context of debt service to revenue. Therefore there is the need for caution regarding the way and manner we have gone ahead with accumulation of humongous debts.
You expressed concern about sustainability of borrowing. Is there any issue with the debt servicing programme?
We are not aware of any particular debt serving plan except in so far as allocation has been made as part of the budget details for an amount voted for debt servicing during the year. After such provisions have been made, we are not aware of the progress in this regard as it is hardly advertised. Fortunately so far there has not been any alarms regarding defaults with debt servicing and to a large extent, the country’s capacity to borrow has not been undermined. We are rather aware that all debt instruments offered by the country have been oversubscribed. But this development must not lure us into false sense of complacency in this connection.
Let’s talk about Nigeria’s various blueprints for economic diversification…
Economic diversification has been the focus of policy since the Structural Adjustment Program of 1986. It has been recognised by policy makers that there is the urgent need to diversify the economy to reduce its vulnerability as it depends to an unhealthy extent on revenue from the oil sector. But the result is that at best we have made knee-jerk progress since the policy measures have not been duly implemented and therefore the expected results have not manifested. This administration has pursued the same efforts to diversify the economy, particularly by boosting activities with the agricultural value chain in view. In this regard we recall the Anchor Borrowers’ Programme, which was promoted by the Central Bank targeted at making the country self- sufficient in food products particularly rice, maize, yams etc. The CBN has also creatively provided windows for the autonomous inflow of foreign exchange, thus reducing reliance on the oil sector for the generation of dollar liquidity. The progress in this connection is currently being hampered by lack of an enabling environment for the implementation of focused programmes and policies that are calculated to fast forward the drive to reduce reliance on revenue from oil.