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•Could disrupt macro-economic stability, cause hyper-inflation, increase poverty, reduce value of bonds.

By Sulaimon Olanrewaju, Akin Adewakun And Chima Nwokoji

Economic and financial experts have described printing bank notes to augment money to be shared from federal allocation to the three tiers of government as an unfortunate development that could pose serious threat to the country’s future.

According to the experts who spoke with the Nigerian Tribune on Sunday, the situation would disrupt the macro-economic stability, weaken the currency, emplace a regime of hyper-inflation, increase poverty in the country and reduced the worth of the nation’s bonds.

Edo State governor, Godwin Obaseki, while speaking at an event in Benin, the state capital, last week, had revealed that the federal government printed about N60 billion to augment allocation shared by the three tiers in March.

The governor had added that by the end of the current year, the country’s total borrowing would be in excess of N15 to N16 trillion.

“In another year or so, where will we find this money that we go to Abuja to share every month? Last month, we got FAAC for March. The federal government printed an additional 50 to 60 billion naira to top-up for us to share,” he said.

In its reaction to the development, the Lagos Chamber of Commerce and Industry (LCCI) has described the federal government’s decision to print banknotes to augment allocation to states as posing serious macro-economic risks.

The Chamber’s Director General, Dr. Muda Yusuf, said that the action would result in inflation and currency depreciation.

He described the high inflationary pressure, being currently experienced in the economy, as a fall-out of the exercise.

“The Governor of Edo State has not said anything new. The situation is even worse than the picture he painted.  CBN financing of government deficit has reached unprecedented levels in recent years.

“In 2020, it was in excess of two trillion naira. In monetary parlance, it is referred to as Ways and Means Financing (WMF) by the CBN,” he stated.

The LCCI boss described the development as a reflection of the weak revenue performance of government in the face of growing expenditure.

“Inflation is presently at 17.33 per cent as at February, the highest in recent times.  Food inflation is even much higher at over 21 per cent,” he stated.

Dr. Yusuf also stated that the development had serious implications for the currency, since it would invariably weaken and depreciate the currency.

“All of these are taking a huge toll on production costs, operating costs and the welfare of citizens,” he added.

Speaking in a similar vein, the chairman of a new generation bank, who pleaded anonymity, said what the governor said was not new, adding that printing money to shore up revenue for the three tiers had been going on consistently for over four years.

“What is news is that Governor Obaseki said it last week. We have been raising concern about this issue for a long time, but no one seems to be listening,” the bank chairman told Nigerian Tribune.

In his own reaction, a financial analyst and Chief Executive Officer of Wealthgate Advisor, Mr. Adebiyi Adesuyi, described printing banknotes to augment revenue as a wrong approach to economic management.

According to him, “Borrowing to finance government’s projects is not entirely bad. However, the Nigerian case is precarious because the total debt stock of N32.22 trillion (84.57 billion US Dollars) is not sustainable.

“Oil export is the only hope of repaying the debt. What is the future of oil in the global market? Bleak. Dwindling. Every country is embracing renewable energy. The world is going green in order to protect the global environment. If nobody buys the only commodity we take to the world market, how do we finance future infrastructure? How do we repay past debts? We need a rethink. It has to be fast. It has to be strategic,” he argued.

The Wealthgate Advisor’s boss stressed the need for the Federal Government to allow each state to take ownership of resources in their domain.

“Let each state develop and market what they have. Instead of going to Abuja to share money every month, let each state give a percentage of its monthly revenue to the Federal Government every month. This is the real model of Fiscal Federalism. It will encourage positive competition among federating units. It will not rob Peter to pay Paul again,” he stated.

Seun Onigbinde, co-founder of civic advocacy group, BudgIT, expressed worry that the development would lead to inflation, while wondering what the political implication of the government’s securitization plan could be in the nearest future.

According to him, Nigeria will be printing money again to service domestic debt, thereby attracting inflation.

Another expert who spoke with the Nigerian Tribune expressed concern that if government continued to print money to pay off the national debt, inflation would rise and the value of bonds would crash.

“If inflation increases, people will not want to hold bonds because their value is falling.

“Therefore, the government will find it difficult to sell bonds to finance the national debt. They will have to pay higher interest rates to attract investors.

“If the government prints too much money and inflation gets out of hand, investors will not trust the government and it will be hard for the government to borrow anything at all.

“Therefore, printing money could create more problems than it solves.”

Fitch Ratings had in January this year warned the federal government that sustained use of direct monetary financing could raise risks to macroeconomic stability given the economy’s weak institutional safeguards.

According to the rating agency, the federal government directly borrowed 1.9 per cent of the GDP from the CBN to fund its fiscal deficit in 2020, estimated at 3.6 per cent of the

Fitch had written then, “We estimate that the balance of the government’s WMF with the CBN was around NGN9.8 trillion (6.7% of GDP) at end-2019, up from NGN5.4 trillion (4.2% of GDP) at end-2018. Unlike the government, we include this balance in our metrics for Nigeria’s government debt. Borrowing from the facility accounted for 30% of the FGN’s debt at end-2019, on our estimates.”

But the CBN governor, Godwin Emefiele, contradicted the global rating agency saying as the lender of last resort, the CBN was duty bound to offer support “If government cannot finance all its obligations.”
https://tribuneonlineng.com/pr...