By Festus Tokunbo
The floating exchange rate regime has caused about 50% depreciation of the Nigerian currency to other basket of currencies and will impact the monetary poverty index in the country. President Tinubu’s administration has borrowed over $1.5 billion from World Bank in the past three months to fund women’s development program. This is not a sustainable borrowing based on the current fiscal crisis in which Nigeria is spending over 77% of it Internally-Generated-Revenue on debt servicing.
President Bola Tinubu’s government unveiled its 8thpoint economic agenda during the first Federal Executive council meeting in August 2023, which includes the goal of poverty eradication in Nigeria. According to the multidimensional poverty index study jointly conducted on Nigeria in 2022 by the United Nations Development Program (UNDP), the University of Oxford centre for poverty and Human Development Initiative, and the National Bureau De Statistics, 65% of the 216.7 million Nigerians population are multidimensional poor and 40.1% of them have monetary poverty. In his economic blueprint, President Tinubu highlighted the ambitious target of removing over 100 million Nigerians out of poverty in the course of his administration. Achieving this kind of ambitious goal requires strong institutions and policies. China successfully removed about 800 million people out of poverty within 30 years. The government of President Buhari probably had the weakest technocrats in Nigerian political history. When Buhari became President in 2015, the World Bank estimated there were 89 million Nigerians below the poverty line. When President Buhari completed his presidential tenure in 2023, the number of Nigerians below the poverty lines has increased to 135 million. President Buhari’s wrongheaded macroeconomic policies created about 40 million people in poverty within 8 years. The failure of President Buhari’s administration was a macroeconomic failure. President Tinubu’s government is becoming BUHARI 2.0 in its macroeconomic policies and practices. If this trend continues, the number of Nigerians below the poverty line may be around 200 million in 2027. From the economic point of view, there is a linear relationship between the dollarization of the economy, the currency crisis, and monetary poverty. From the multidimensional poverty index study on Nigeria, it can technically be argued that the leading cause of poverty in Nigeria is monetary poverty. Monetary poverty is a direct consequence of currency crisis which is often caused by macroeconomic misalignment. So, the most effective tool to eradicate poverty in Nigeria is by consistently maintaining macroeconomic stability, which depends on promoting policies that de-dollarized the Nigerian economy. President Tinubu started averagely well by implementing some economic reform policies such as the Nigerian electricity bill 2023, subsidy eradication policy and exchange-rate unification policy. But the implementation of a subsidy policy with a floating exchange rate regime is very questionable and has weakened the socioeconomic variables. The floating exchange rate regime has caused about 50% depreciation of the Nigerian currency to other basket of currencies and will impact the monetary poverty index in the country. President Tinubu’s administration has borrowed over $1.5 billion from World Bank in the past three months to fund women’s development program. This is not a sustainable borrowing based on the current fiscal crisis in which Nigeria is spending over 77% of it Internally-Generated-Revenue on debt servicing. The World Bank and IMF loans are conditioned on market conditionalities that worsen the macroeconomic variables of the borrowing countries.
ADDRESSING THE NIGERIAN POVERTY-INDEX DEPEND MUCH MORE ON MINISTY OF FINANCE & THE CBN; addressing the poverty index in Nigeria depends so much on the macroeconomic alignment, which depends on policy coordination between the Ministry of Finance and the CBN. Basically, the failures of the President Buhari’s government are macroeconomic failures. The Ministry of finance could not create sustainable fiscal policy regimes that improve government revenue to exceed its budget. Nigeria resulted in international borrowing to finance the government budget which led to the country spending over 77% of its revenue on debt servicing. The CBN on its part was guessing, with the monetary policies in the past 8 years. The former CBN governor, Emefele created an effective method of managing the dollarization of the Nigerian economy, but the problem with Emefele’s was the irregularities and lack of accountability in the monetary policy system. The failures of the Ministry of Finance and the CBN during President Buhari’s regime destabilized the economic and social economic variables and increased the poverty index in Nigeria. The success or failures of President Tinubu’s government would be principally determined by the Ministry of Finance and CBN. The CBN in the first 3 months of Tinubu’s government implemented wrongheaded monetary policies that led to over 50% depreciation of the Nigerian currency against the dollar. This is already creating socio-economic crisis within the country. The President has appointed two Acting CBN Governors in the past 4 months. It is like guessing about the monetary policy management. Having won the election in February 2023, the President ought to have consulted widely, within and outside Nigeria and beyond political affiliation to decide on a capable technocrat as the CBN governor before he was sworn in as President in May 2023.
MY ADVICE TO THE NEW CBN GOVERNOR; Reverse the floating exchange-rate regime; the exchange-rate has a direct influence on the consumer-price-index because Nigeria is primarily an import-based society. The smartest way to stabilise the price-level is adopting a pegged exchange-rate regime and allocate dollar supplies to the essential services and goods that are critical to Nigerian macroeconomic stability. Nigeria will not be able to generate adequate foreign currencies to supply the currency market. That’s why CBN must always promote policies to de-dollarize the Nigerian economy and stabilize the macroeconomic variables. The CBN must resume the policy of allocating forex to importers for fuel importation to stabilize the petroleum price. The CBN also need to resume forex allocation to commercial banks with strict regulation and control to ensure transparency in the banking sectors. The permanent and sustainable solution to currency instability in Nigeria is local production of goods and services which will reduce the dependence on foreign goods for consumption. The Nigerian Electricity Bill 2023 will stabilise electricity production in Nigeria in the next 5 years, which will eventually stimulate local production, reduce importation, cause appreciation of the Nigerian currency and stabilise the macroeconomic variables. The best method the CBN has presently is to constantly promote manoeuvring monetary policies against the market forces to relatively stabilize the macroeconomic until Nigeria transit to production and industrial societies. The Nigerian currency is among the weakest in Africa in spite of its huge mineral resources. Nigerian currency failures were a consequence of the weak macroeconomic policies implemented over the years in Nigeria. The CBN must revisit the Yuen/Naira currency swap that was started by the Former Minister of Finance Ngozi Uwella meant to de-dollarized the Nigerian economy, strengthen the Nigerian currency and improve the Nigerians purchasing power. The Nigerian government should also consider currency swaps with its top trading partners like India. The Nigerian government should facilitate its registration with BRICS to decentralise the Nigerian economy from dollar hegemony that’s destabilising the economic and socioeconomic variables.
MY ADVICE TO THE MINISTRY OF FINANCE; as said earlier, the Ministry of Finance is crucial to addressing the poverty-index in Nigeria. It is therefore crucial that the finance department promote policies that improve the Internally-Generated-Revenue and engage in sustainable loan regimes. In the modern economy, governments both in developed and developing countries borrow to finance government budgets and stimulate growth. I was recently employed by an American NGO to engage the Nottingham member of British Parliament to support legislation that will ensure the UK government fulfils the 0.7% Gross National Income (GNI) benchmark for Official Development Assistance given to low-income countries. In our engagement, the Nottingham MP said the UK will not be able to fulfil the 0.7% benchmark until 2027/28, because the government is borrowing to finance its day-to-day spending. The advanced countries engage in sustainable borrowing to stimulate economic growth, but the low-income countries borrow mostly for consumption. During the administration of President Buhari, there were 2 basic loan regimes to Nigeria; there was the Western loan-regime and the Chinese loan-regime. While the Chinese loans regime were invested on capital projects like the construction of the Lekki Deep Sea Port, the interstate train system that connected the Nigerian major cities and rehabilitation of the airports, the western loans from IMF and the World Bank were basically invested on recurrent expenditure. From the development perspective, the Chinese loans were more sustainable loans than the western loans because the capital projects improved Nigerian Internally-Generated-Revenue that stabilised the fiscal space. The IMF and World Bank loans are also conditioned on market conditionalities that strengthen dollarization of the economy and destabilise the macroeconomic variables of the borrowing countries. The Ministry of Finance must critically review the Nigerian borrowing regime. The government should always engage in sustainable borrowing with less market’s conditionality.
I want to advise that President Tinubu and his cabinet embrace the recommendation in this article to stabilise the currency, stimulate growth, address poverty and achieve sustainable development of the country.
Festus Tokunbo is a Public Affairs Analyst.
