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Danger ahead as inflation hits 18.17%

EMEKA OKOROANYANWU

The Nigerian economy is in comatose, even as the country’s economic minders are thinking otherwise. There is palpable fear that things may get worse.

 Indications that the country’s economy is heading south emerged last week when Edo State Governor, Godwin Obaseki, revealed to a bewildered nation that the country printed between N50 billion to N60 billion to augment the monthly take-home revenue of the 36 states and the Federal Capital Territory, Abuja, to enable them to meet up with salary payments and incendiary expenses. This is even as many private establishments are finding it difficult to pay salaries since last year at the outbreak of the coronavirus pandemic worldwide. Many private businesses have equally failed to reopen while others have closed shop outright.

The weak economy can be felt on all fronts. Last week, the National Bureau of Statistics (NBS) came out with a frighteningly high figure of 18.17 per cent inflation rate for the month of March from 17.33 per cent in February 2021, explaining that higher food prices coupled with the high cost of refined petroleum products are some of the reasons that March 2021 inflation figure hit that much high, the highest in five years.

 NBS said the continued rise in the general price level suggests that price inflation is not transient but now more persistent in the economy.

 Major inflation stoking factors, it said, ranging from higher costs of refined petroleum products at 12.07 per cent to an exchange rate that is not in alignment and the impact of high-powered money with a shorter transmission time lag into the markets.

Also, the decline in imported raw materials due to foreign exchange rationing, NBS said, is forcing manufacturers to look inwards for local substitutes, reducing the supply of commodities to retail markets, NBS said.

Today, Nigeria’s average GDP growth has slowed to 1.7 per cent compared with the 4.8 per cent recorded pre-recession before 2016. In 2017, the GDP growth was 0.8 per cent while it was 1.8 per cent in 2018. The GDP growth was 2.21 per cent and 1.92 per cent in 2019 and 2020, respectively, indicating a porous economy for a country that the population growth is exceeding 8.2 per cent annually. Cumulatively, the economy has grown less than o.5per cent in the six years that the present government has been on the saddle.

Equally, unemployment has hit 23 million idle Nigerians while about 36 million people are underemployed. About 80 million Nigerians live below the poverty line.

Nigeria’s harsh operating environment, poor infrastructure, rising inflation, trade and FX restrictions, porous land borders and logistical setbacks have also dampened the performance of the economy.

The price of Nigeria’s sweet crude, the Brent, even though has risen to above $45 per barrel in the international Spot Market. The rise is still little to have a positive effect on the overall economy. The falling oil prices have already wiped out over $20 billion from the country’s 2020 budget of $10.59 trillion, which was predicated on the country selling crude at $57 per barrel.

The demand and supply disruptions caused by COVID-19 coupled with weaker oil prices have laid the foundation for a looming economic crisis in the country, as Nigeria is yet to exit recession engendered by the debilitating variables. The slump in global oil prices created FX illiquidity, thus posing a major challenge for players, who depend largely on imported raw materials for production.

Additionally, the lockdown, which began in April last year to contain COVID-19, disrupted business activities, thus slowing sales during the period even as the risk of the consumer goods sector being impacted adversely by the pandemic remains high, although essential goods manufacturers are moderately affected.

In quick reaction to the low oil price, which has hit adversely Nigeria’s economy, investors have pulled out over $8 billion from the capital market since last year March, further putting the economy in serious jeopardy.

 From the figures released last week by NBS, all the various inflation baskets deteriorated, indicating that the impact of government interventions in the economy is not achieving desired results. It also reveals that money supply growth of 1.41 per cent is compounding the demand-pull effect on the general price level, as total agriculture intervention was N1.487trn, 0.78 per cent of GDP, which is not only inadequate nominally but will also have a very limited multiplier effect on aggregate output.

According to NBS figures, month-on-month inflation inched up by 0.02 per cent to 1.56 per cent (annualized at 20.41%) in March from 1.54 per cent (20.22% annualized) in February. The marginal increase can be partly attributed to weak aggregate demand and consumer resistance to price increases, which is forcing manufacturers to bear the burden of higher production costs. Consumers especially at the bottom of the income pyramid are beginning to shift to relatively cheaper commodities.

 In March, the year-on-year food inflation increased sharply by 1.16% to 22.95% while the monthly sub-index inched up by 0.01% to 1.90%. The spike in the annual general food price level is an indication that output levels were below what was recorded in March 2020 (pre-COVID lockdown). COVID restrictions and heightened insecurity prevented farmers from operating at optimal capacity during the planting season. The commodities that recorded the highest price increases were bread and cereals, potatoes, yam and other tubers, meat, vegetable, fish, oils and fats and fruits.

The annual core sub-index, inflation was up 0.29% to 12.67% in March. However, on a monthly basis, it fell by 0.15% to 1.06%. The highest price increases were recorded in air and road transport, medical services, pharmaceutical products, repair and maintenance of vehicles. Core inflation is currently 3.67 per cent above the 364-day t/bill (9.0%)

 The year-on-year urban and rural inflation rose by almost the same magnitude in March. The urban sub-index increased by 0.84% to 18.76% while the rural sub-index climbed by 0.83% to 17.6%. On a monthly basis, both sub-indices increased by 0.02% to 1.60% and 1.52% respectively.

 Signs that the situation of the country’s economy may have gone out of control was seen last week when the Edo State Governor, Godwin Obaseki spilled the beans and revealed that the country may have been printing money through ways and means to throw into the economy.

Here’s what Obaseki said: “When we got to 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 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.”

The Edo State Governor made the disclosure during a closed-door engagement with members of the state’s transition committee as he tried to explain the dire straits the country has found itself presently with the implications for the states. Disclosing that the Federal Government is so broke, Obaseki was said to be complaining bitterly about the state of the country’s economy. Federal Government’s reaction to Obaseki’s intervention was immediate as the Minister of Finance, Budget and National Planning, Mrs Zainab Ahmed, described the governor’s statement as untrue.

Speaking with State House Correspondents in Abuja, she said: “The issue that was raised by the Edo State Governor, for me, is very, very sad,” adding “Because it is not a fact.

”According to the minister, “What we distribute at FAAC is revenue that is generated and, in fact, distribution of revenue is 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.”

Obaseki in a reaction to the Finance Minister advised the government to “stop playing the Ostrich.” He also called for urgent steps to end what he described as the country’s “current monetary rascality,” so as to prevent the prevailing economic challenge from degenerating further.

Obaseki’s advice, however, triggered a lot of controversies and condemnation coming from government circles, especially for daring to open a can of worms on the economy and saying what has been known all these years about the parlous state of the economy.

The Progressive Governors’ Forum (PGF) refuted Obaseki’s claim by releasing the sum shared by the FAAC in March. Chairman, Governor Abubakar Atiku Bagudu of Kebbi State, said the claim was wrong and did not reflect the true position of things. The PGF said the impression it got was that it was an impromptu remark made in a private meeting, but it was however “shocked to see yet another response from our colleague to the rebuttal by the HM Finance insisting that the March 2021 FAAC was augmented via the printing of money.”

“As a trained economist who has been a governor since 2016, Mr. Obaseki is aware of all the support states have received from President Buhari in coping with the shocks that have resulted from the COVID-19 pandemic and resulting economic recession,” the forum chairman said.

He said, given the significance of the statement from a sitting governor and the possible negative impact it has brought to the credibility of both the federal and State government in managing government finances, it is obliged to set the records clear that to the best of its knowledge.

“The total distributable statutory revenue for the month of March 2021 was N596.94 billion. Due to the shortfall in gross statutory revenues by N43.34 billion compared to the previous month, an augmentation was made in the sum of N8.65 billion from the Forex Equalization Fund Account, which brought the total distributable revenue to N605.59 billion.

“Federation revenues distributed monthly primarily consist of mineral revenues from the sale of oil and gas, as well as non-mineral revenues from customs and excise duties, company income tax, and value-added tax.”

The PGF, however, admitted that there are periods when the country experiences significant fiscal shocks in federation revenues but says the shocks are offset by other savings serviced from the federation account, including distributions from the domestic excess crude proceeds and the foreign excess crude savings account.

“These payments started since 2008 when the country first experienced fiscal shocks from the fallouts of the global financial crisis of 2008 – 2009. As a trained Economist who has been a Governor since 2016, Mr. Obaseki is aware of all the support states have received from President Buhari in coping with the shocks that have resulted from the CoviD 19 pandemic and resulting economic recession.

“Not only have we received budget support, bail out support to meet salary obligations and infrastructure refunds to all states, this was implemented in the overall public interest without discrimination on the basis of party affiliation. This is why it’s unfortunate and disingenuous to allege preferential treatment of APC states when PDP governed states are even greater beneficiaries of all the support,” said the PGF.

It said there was nothing exceptional in this current review of economic orthodoxy because “almost every Central Bank in the world is taking steps to support their government in coping with the effect of Covid 19 pandemic on the national economy. This has become the norm rather than the exception as all countries grapple with the deleterious effect of economic recession,” he said.

But a former commissioner for finance in Edo State, Bright Omokhodion, said that the statement by Governor Obaseki can take an economy to a level of depression. “N60 billion cannot fund the Federation Account. Oil prices have gone up for some time now and we therefore cannot discountenance the inputs into the FAAC from the receipts of the Nigeria National Petroleum Corporation, NNPC,” he said.

“If the Federal Government finds a fiduciary base to print money, they would do so. Hypothetically speaking, if a government sells bonds and prints money to back it up, would it go about announcing that it printed money? Obaseki’s statement was flippant. As an investment banker, he ought to know that investment is based on value,” the former Commissioner said, restating the negative implications of the governor’s statement for the economy, Omokhodion called for more caution and circumspection.

Apparently miffed by Obaseki’s outburst, Central Bank Governor, Godwin Emefiele in a reaction said that printing money is part of the responsibility of the apex bank. He said no central bank would watch its government crumble when the bank is in a position to sustain government business and to ensure it plays its governance roles.

“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 colourations to the word ‘printing of money’ as if it is a foreign word coming from the sky,” Emefiele said.

He recalled that in 2015/2016, the CBN extended a bail-out facility to the states to enable them to survive the turbulent times that were not even as bad as what the country is currently undergoing.

“All the loans remain unpaid until now and we are going to insist on the states paying those loans going forward, since they are accusing us of giving them loans that is what they are saying.”

Emefiele explained that most countries of the world are confronted with the health and economic challenges of COVID-19 and their government banks are taking steps to rescue the economy.

“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.”

Emefiele said Nigeria is in a very bad situation and that the Central Bank of Nigeria is doing everything it can to ensure that the economy is stabilized. He said Nigeria is doing anything different from what the advanced countries of the world are doing to rescue their economies

Emefiele threatened that the CBN was going to recover intervention loans extended to state governors. “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”, he said.

“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,” Emefiele said.

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