Dangerously, the national currency has been in a free fall.
It tumbled to a new low of N610 to US$1 last week in the parallel market,
heightening fears of a further devaluation by the Central Bank of Nigeria. The
rate at the Importers and Exporters Window was, however, N415.75 on May 23,
widening the exchange rate spread to N194.25. This sustains the prevalence of
illegal arbitrage and upturns fiscal planning in the public and private
sectors.
As businesses and citizens fretted over the foreign exchange
volatility and its attendant negative effects, the CBN, a day after, raised the
benchmark interest rate to 13 per cent for the first time in two years from
11.5 per cent to 13 per cent, a 150 basis points jump. This will invariably
push inflation further up.
The naira is weakening steadily due to increased
speculation, falling external reserves, and low forex inflows. External
reserves fell by $313 million in March, says the CBN. The increase in the tempo
of political activities is seen also as a key factor in the depreciating
exchange rate. Meanwhile, politicians are reportedly mopping up dollars for the
2023 electioneering.
Undoubtedly, Nigeria’s leadership is not managing the
headwinds effectively. The country remains import-dependent and continues to
rely on crude oil for over 80 per cent of the foreign earnings. Conversely, it
is not benefitting from the rising oil prices fuelled by the Russia-Ukraine
war. Primarily, this is due to a lack of capacity to increase production
because of massive crude theft and receding investment.
Diaspora remittances, which represent a major source of
forex inflow into Nigeria, have been on the decline, lately from $12.3 billion
in the second half of 2018 to $9.3 billion in the first half of 2021, according
to CBN data.
The crashing naira is a problem foretold. The haphazard way
the CBN has been managing the economy has been a cause for concern for years.
The system is rife with inconsistency, cronyism and corruption. Analysts fear the naira may crash further to
N1,000 to $1 soon.
The CBN’s multiple exchange rate regimes fuel massive
corruption and arbitrage; connected persons and operators make huge profits,
while genuine users of such as manufacturers and small-scale industrialists and
other producers can hardly obtain forex. They are forced to source dollars from
the parallel market as the official channels hardly meet 10 per cent of their
needs.
The CBN Governor, Godwin Emefiele’s recent reckless plunge
into the murky waters of politics has eroded the little confidence that
Nigerians and international investors have in the CBN’s ability to steer the
economy on the path of growth, and manage inflation, forex and interest rates.
The National Bureau of Statistics said inflation jumped to
16.82 per cent in April, the highest in eight months, following a similar
uptick recorded in the previous month on the back of higher energy and food
prices. Inflation was 15.92 per cent in the previous month.
In another critical segment, Nigeria’s total public debt
rose to N39.55 trillion in December 2021, representing N1.55 trillion or a 4.1
per cent increase in three months from N38 trillion in September 2021.
The regime’s appetite for borrowing is unprecedented. In
April, Buhari requested approval for an increase in the 2022 budget deficit to
be financed through domestic borrowing a few days after the Debt Management
Office released a schedule of the Federal Government’s N720 billion domestic
borrowing plan for the second quarter of 2022.
Factory closures and the attendant job losses, congestion at
the ports, as well as rising JET-A1 price that has almost crippled the domestic
aviation industry, are clear signs of a collapsing economy.
The Federal Government should apply the brakes on borrowing
in another spurious bid to fix the moribund refineries, the Ajaokuta Steel
Company and other wasteful expenditure.
Buhari has not undertaken the privatisation of a single
public enterprise in his seven years in office. Asset sales offer a way to turn
the money-gulping enterprises into profit-making ventures that can yield
benefits to the economy. Government should privatise the ports and airports
through honest concession arrangements.
The low tax collection rate hurts the economy. It should be
reversed. Although Value Added Tax collection hit N2.07 trillion in 2021, it is
mainly because the rate was raised from 5.0 per cent to 7.5 per cent from
February 2020. Tax income in 2020 was N8.8 trillion. Taxes are under-collected
as are income from revenue-generating agencies.
Overall, Nigeria’s 6.1 per cent tax-to-GDP ratio (2019) is
among the lowest in the world. It is far behind the 16.5 per cent tax-to-GDP
for 30 African countries and the 32.9 per cent average in the Organisation for
Economic Cooperation and Development countries.
Therefore, public agencies not remitting revenue to the
government coffers must be compelled to comply with the extant laws. The
government must recover money owed the country by International Oil Companies
in line with a Supreme Court judgement it has so far failed to enforce.
It must plug all revenue leakages; reform the Nigeria
Customs Service to minimise smuggling, which is badly hurting the economy.
Maintaining nine presidential aircraft in a struggling economy goes against
rationality. The wasteful distribution of money to people that cannot be
identified through the dubious ‘conditional cash transfers’ should stop.
Instead, target single-digit credit to micro-businesses and small farmers. The
CBN should scrap the catastrophic multiple exchange rate regime.
Power is a major problem for industries. This sector needs
urgent, radical reforms. An economy in trouble needs expert input and strong
collaboration between the public and the organised private sector. Buhari
should mobilise all stakeholders to rescue the fragile economy. -PUNCH