The Currency Printing Controversy
In this piece, James Emejo, chronicles the recent controversy surrounding the alleged printing of currency by the federal government to support the economy
Edo State Governor, Mr. Godwin Obaseki, last week, stirred a costly controversy when he claimed that the federal government has had to resort to printing of currency to augment shortfall in revenue.
The governor had, during the Edo State transition committee stakeholders engagement last Thursday, tried to warn about the consequences of country’s continued reliance on crude oil as major revenue sources as some of multinational oil companies and developed economies transit to alternative energy sources.
Obaseki had only re-echoed similar concerns, recently raised by prominent personalities including the Director General of the World Trade Organisation (WTO), Dr. Ngozi Okonjo-Iweala, during her recently visit to the country.
Okonjo-Iweala, particularly expressed her discomfort and fears for the economy, which is still largely oil dependent on oil for survival while other countries had already commenced their trasition to renewable energy.
But the governor, apparently, stirred the hornet’s nest, when he told the gathering that amidst the existing fiscal constraints, the federal government has had to print between N50 billion and N60 billion to augment FAAC revenues for March, while also expressing strong reservations over the country’s rising debt profile.
He told the committee: “Nigeria has changed. The economy of Nigeria is not the same again whether we like it or not. Since the civil war, we have been managing, saying money is not our problem as long as we are pumping crude oil everyday.
“So we have run a very strange economy and strange presidential system where the local, state and federal government, at the end of the month, go and earn salary. We are the only country in the world that does that.
“Everywhere else, government rely on the people to produce taxes and that is what they use to run the local government, state and the federation.”
He said: “But with the way we run Nigeria, the country can go to sleep. At the end of the month, we just go to Abuja, collect money and we come back to spend. We are in trouble, huge financial trouble.
“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?”
Obaseki added: “When we got FAAC for March, the federal government printed additional N50-N60 billion to top up for us to share,” he said.
“This April, we will go to Abuja and share. By the end of this year, our total borrowings is going to be within N15-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.”
However, if anything, the idea of printing currency did not augur well with some Nigerians, particularly those who claimed to have understanding of economics – given the implications on economy.
Armed with the literal concept of printing currency, the federal government, especially the Federal Ministry of Finance, Budget and National Planning and Central Bank of Nigeria came under heavily criticisms from the public for allegedly resorting to increase money in circulation by printing more naira which could further fuel inflation.
However, in the ensuing controversy, the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, while reacting to Obaseki’s claims, said the information was not only untrue, but unfortunate.
She, further allayed concerns raises by Obaseki over the country’s rising debt portfolio, pointing out that the nation’s current debt profile which is 23 per cent of GDP falls within sustainable limit.
Ahmed had said: “The issue that was raised by the Edo State Governor for me is very, very sad. Because it is not a fact. What we distribute at FAAC is a revenue that is generated and in fact distribution revenue is a 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 added:“On the issue of the borrowing, the Nigerian debt is still within sustainable limit. What we need to do as I have said several times is to improve our revenue to enhance our capacity to service not only our debt but to service the needs of running government on day to day basis. So our debt currently at about 23 per cent to GDP is at a very sustainable level if you look at all the reports that you see from multilateral institutions.”
But Obaseki, in a follow-up statement, stood by his words, insisting there was printing of money.
However, with inflation rate currently at 18.17 per cent as at March, largely caused by the food index, analysts were quick to point out that pumping naira into the economy without commensurate output production could particularly be detrimental to the economy as this will further worsen current inflationary pressure.
Nigerians, practically intensified their search for answers why money should be printed to augment revenue shortfall, and anxiously awaited the position of the CBN.
It took the bold intervention of the CBN Governor, Mr. Godwin Emefiele, to finally calm the troubled waters.
Although, the CBN governor did not waste time trying to puncture the claim on whether it printed money or not, he nevertheless, clarified that the concept of printing money does not necessarily involved actual printing but also the act lending money.
Emefiele, who felt the controversy was uncalled for, said, “It’s inappropriate to give colouration to currency printing”.
Reacting to Obaseki’s statement on printing of currency, he said, the CBN acted in national interest.
The CBN governor, who spoke during a facility tour of the Dangote Integrated Sugar complex in Tunga, Awe Local Government Area of Nasarawa State, expressed dismay over attempts to distort the concept of printing of money.
He said: “It’s very inappropriate for people to just give colouration to printing of money as if it’s some foreign word coming from the sky.”
According to him,If you understand the concept of printing of money. The concept printing of money; it’s about lending money.
“That’s our job – to print. It’s about lending money and so there’s no need putting the controversy about printing of money as if we are going into the factory printing the naira and start distributing on the streets.” However, Emefiele’s intervention in the controversy did not come without a cost to the state governments.
He said since the state governments had resorted to indicting the federal government and by extension the CBN for assisting them with bailout loans to meet their financial obligations during the 2015/2016 fiscal crisis, they must repay the debts.
In July 2015, President Muhammadu Buhari had approved a N1.5 trillion intervention package to assist bankrupt states pay salaries.
He justified the CBN’s interventions in the economy, noting that these are also some of the measures currently being adopted by developed countries to reflate their economies.
He stated that it would have been irresponsible of the CBN or any central bank to stand idle and refuse to support its government at this critical point in time.
According to the CBN governor, I think it’s important for me to put it this way. “That in 2015/2016, the kind of situation we found ourselves now, which is even worse than 2015/2016, we did provide budget support facility to all the states of this country.
“That loan remains unpaid till now. And we are going to insist on the states paying back those monies since they’re accusing us of giving them loans.
“Most countries in the world today are confronted by not only health challenges coming from the COVID-19 pandemic, causing economic crisis and the rest of them.
“What I keep saying is that it’ll be irresponsible for the CBN or any central bank or any Fed to stand idle and then refuse to support its government at this time.
“What is being done is being done in any clime. And at the last MPC meeting, I gave data on what is being done in developed economies to shore up their economy and take them out of recession.
“Nigeria is unfortunately in a very bad situation. I am not going to pretend about it, in the sense that we are facing problems about productivity output, which is GDP. Luckily we managed to come out by a hair’s breadth.”
However, analysts, in separate interviews with THISDAY, though warned that a sustained policy of printing the currency, if not well managed, would hurt the economy – further opined that currency is not entirely bad and remains at the discretion of the apex bank.
Managing Director/Chief Executive, Dignity Finance and Investmemt Limited, Dr. Chijioke Ekechukwu, pointed out that printing of currency was often one of the “ways and means” activities of the CBN which could be used at its discretion.
He, however, clarified that, “giving out loans is not the same as printing.”
He said: “The CBN has a myriad of functions, one of which is minting and printing of currency. CBN does and executes this function only when it is absolutely necessary. Every country does this as the need arises.
“It is not an activity that is usually made public when in place. I therefore condemn the public proclamation made recently by the public officer who was supposed to exercise caution.
“One of the dangers of printing of currency at will, is that it creates and causes inflation. But when there is revenue shortfall, it may be relied upon to fund certain local expenditures.”
Also, Managing Director/Chief Executive, Credent Investment Managers Limited, Mr. Ibrahim Shelleng, said the development could lead to further devaluation of the currency and create further cost-push inflation, given that the country is heavily import-dependent.
He said the government would need to take some tough decisions in the future to address the impending fiscal crisis.
He said: “Essentially what we are seeing is quantitative easing, which is a method used by governments to raise money outside taxation and borrowing.
“The effects of this will undoubtedly be a further devaluation of the currency and create further cost-push inflation as we are heavily import-dependent.”
Shelleng warned that, if the development continued, with no resultant uptick in production and growth, there might be a free fall of the naira.
According to him, Ideally, quantitative easing should be used to help stimulate growth by injecting the funds raised to key growth drivers of the economy.
“However, in the Nigerian case, it is being used to fund an over-bloated government with no resultant increase in productivity.
“The worst-case scenario (which we don’t pray for) is this leading to hyperinflation as witnessed in Zimbabwe in the early 2000 or in post-war Germany.”
Also, commenting on the development, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said the CBN has its mandate to be the federal government’s lender, adding that it will likely be over-financing the government, if it resorted to printing more Naira notes for the government.
He said: “This could mean that Nigeria presently cannot fund itself and can lead to excess pressure on the private sector for taxes.
“It could also lead to inflation because if enough revenue is not generated through oil and other targeted revenue heads for the government to fund its activities then we could be heading towards economic disaster.”
Also, former Director-General of the West African Institute of Financial and Economic Management (WAIFEM), Prof. Akpan Ekpo, stated that globally, central banks do print money as the last resort when faced with fiscal challenges.
“If you print it and don’t manage it well, you are going to have too much money in circulation chasing after few goods. So, that creates inflationary pressure.
“The inflation we are seeing in the country in the past few months is caused partly because of the printing of money. That is why you will see that even though agricultural production is going up, yet food prices are increasing. So, the impact is that it increases inflation in the economy, which is not good, especially for the poor,” he said.
He further explained that, inflationary pressure heightens hardship in the economy.
Ekpo said:“Now, in our own case where you have sub-national governments, you now print and give to state governments, which are even worst. So, it is not good for the economy if not well managed.
But, it is also clear that, some critics of the present administration had only managed to whip up sentiments over the currency printing issue and seized the moment to express their reservations.