Monetary policy and fiscal policy are the two most widely recognised tools used to influence a nation’s economic activities. By definition, monetary policy is fundamentally concerned with the management of interest rates and the total supply of money in circulation, and is normally carried out by the central bank. Fiscal policy, on the other hand, deals with the taxing (or revenue generation) and spending actions of (central) governments. Therefore, both monetary and fiscal policies are macroeconomic tools used to manage or stimulate the economy. In Nigeria, the Central Bank of Nigeria (CBN) constitutes the monetary authority — and wields all the powers pertaining to monetary policy formulation and execution.
The gamut of its duties and authority are as enshrined in the CBN Act 2007. Hitherto, the apex bank, exercising merely an ‘instrument autonomy’, was almost operating as a parastatal of the Federal Ministry of Finance — which is the arrowhead of fiscal policy formulation and execution. However, the entire executive arm of the central government constitutes fiscal authority (in a broad sense). Given this background, successive administrations in Nigeria adopted some variants of synergy between monetary and fiscal policies in stimulating the economy. However, in the past eight years or so, the monetary authority and its policy (seemingly) gained dominance over the fiscal component.
In point of fact, the monetary authority operated in such a manner that the ‘boundary’ between its sphere and those of the fiscal authority almost got totally blurred. This, indeed, gave birth to the rare phenomenon of ‘fiscalising’ monetary policy in Nigeria. The current governor of the CBN, Olayemi Cardoso, recently deprecated this bizarre situation in his speech at the Chartered Institute of Bankers of Nigeria (CIBN) 2023 dinner in Lagos. Specifically, speaking about the apex bank’s leadership and their modus operandi in recent years, Cardoso accused them of “corporate governance failures, diminished institutional autonomy, a deviation from the core mandate of the Bank, unorthodox use of monetary tools, an inefficient and opaque foreign exchange market that hindered clear access, a foray into fiscal activities under the cover of development finance activities and lack of clarity in the relationship between fiscal and monetary policies, among other challenges.”
In another forum, the newly appointed chairman of the board of the Federal Ministry of Finance Incorporated (FMFI), Shamshudeen Usman, similarly alluded to the incidence of ‘fiscalisation’ of monetary policy and outright breach of the spirit and letters of the CBN Act 2007 by the immediate past leadership of the apex bank. Usman, who was speaking (via Zoom) as chairman of the inaugural roundtable of the Policy and Governance Discussion Platform on Saturday, November 25, 2023, specifically pointed out the brazen abuse of the ‘Ways and Means’ provisions in the CBN Act 2007. The webinar was themed: ‘Effective fiscal policies and governance for inclusive economic development.’
Usman, who is also a former deputy governor of the CBN, narrated the experience of how he and Sanusi Lamido Sanusi (then CBN boss) had to parley with (then President Musa) Yar’Adua, to resist the pressure from Mr. President for them to act in breach of the CBN Act 2007 as it relates to ‘Ways and Means’. Specifically, Section 38 of the CBN Act 2007 stipulates that the total amount of ways and means advances outstanding shall not at any time exceed five percent of the previous year’s actual revenue of the federal government. And “ways and means” in the Nigerian context occurs when the federal government obtains loans from the Central Bank of Nigeria (CBN).
The National Bureau of Statistics (NBS) data show that between 2007 and 2015, the previous central administration in the country took only a combined total of N869 billion from the Ways and Means window. However, between 2015 and April 2023, the immediate past administration of President Muhammadu Buhari collected a humongous N22.7 trillion via the same window. This sum, which came in total violation of the CBN Act 2007, practically stuck in the throat of the Buhari administration; and had to be securitized and added to the nation’s public debt stock. This process which in all respects amounted to ‘fiscalising’ monetary policy, saw Nigeria’s total public debt surging to N77.8 trillion at the end of the Buhari tenure. This took the country’s debt-to-GDP ratio to 38.4 percent.
Incidentally, Section 38 (3) (B) of the CBN Act 2007 prohibits the CBN from guaranteeing securities for which it is an interested party. Somehow, however, the Nigerian senate approved the securitisation of the N22.7 trillion. This unprecedented initiative has since become the climax of what are now widely reckoned as the ‘excesses’ of the CBN or ‘fiscalisation’ of monetary policy in Nigeria in recent years. Aside from this, however, the apex bank, in its acclaimed development finance engagements, practically made footprints on all sectors of the Nigerian economy. The apex bank even went into retail banking: setting up and running its own microfinance bank, among others.
More than ever before, the CBN dabbled into agriculture development (in the name of Anchor Borrowers Programme, ABP) and directly gave loans to smallholder farmers in far-flung villages and communities across many states in the country. These loans, usually given on concessionary terms, on the aggregate, amounted to several hundreds of billions of naira; and till date, the repayment rate remains low. In fact, in most instances, the beneficiary farmers did little or no documentation, and had no intention whatsoever to repay. Today, these huge yet-to-be-repaid ABP loans are part of the baggage handed over to the new Cardoso leadership at the apex bank.
In 2015, the CBN in practically throwing around its weight, unilaterally blocked 43 items from access to foreign exchange through the official window of the foreign exchange (forex) market. This, in a way, was to discourage the importation of those items — and, by implication, encourage their local production. However, the initiative, widely viewed as controversial, was strictly outside the purview of the CBN. Many saw the measure as one that rightly belonged to the fiscal/trade policy domain. This, apparently, was why the Cardoso new leadership at the apex bank had to swiftly unblock the 43 items, within days of coming into office.
However, as the new leadership at the CBN goes to great lengths to wean the apex bank of its ‘bloated’ bag and baggage, it must be wary of falling into similar shackles. For instance, the widely reported $3 billion loan from the Afreximbank contracted or arranged for the apex bank by the NNPC Limited remains a subject of controversy. Should the national oil company be the rightful entity to contract loans for the CBN? This arrangement is made even more curious when the loan is said to have been secured as an ‘oil-for-cash’ deal to stabilise forex rates. Till date, this NNPC-CBN loan deal remains unprecedented; and could signpost more of such ‘emergency measures’ that ‘fiscalise’ monetary policies.
Although the CBN is yet to fully clarify this ‘cash-for-oil’ deal, it is widely believed that it lacked transparency. President and chief executive of the African Development Bank (AfDB), Nigerian-born Akinwunmi Adesina, said at a function in Lagos recently that the NNPC-CBN deal remained “non-transparent, expensive and would not help African countries.” The Cardoso team must therefore hearken on to these warning signs, and return the apex bank back to its assigned purity state. The CBN should stop seeing itself as a factotum in the economic development of Nigeria.
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