Restriction of forex to 41 sectors hurting the economy Advises incoming ministers against flattery of the president Obinna Chima
The Emir of Kano and a former Central Bank of Nigeria (CBN) Governor, Mallam Muhammad Sanusi II, has stressed the need for the federal government to completely remove fuel subsidy.
He also advised the CBN and the Presidency to reconsider their stance against naira devaluation, saying the country cannot continue to live “in denial.”
The Emir spoke after receiving a Life Time Achievement Award at the All Africa Business Leaders Award West Africa in Lagos on Thursday night and monitored on CNBC Africa yesterday.
He said: “Does it make sense at this time for the government to continue paying petroleum subsidies? It does not! When you are not earning because oil prices are down, you have to shut down those expense lines that had been known historically to be the site of rent-seeking.
“Fuel subsidy has to go, our tax base has to expand, value added tax (VAT) has to go up. We can’t continue having an economy in which we collect tax from oil, collect tax from telecoms companies, and then 60-70 per cent of the Gross Domestic Product (GDP) does not pay taxes. This is something that has to be looked at.
“But if we have to go through fiscal consolidation, which in this time would be pro-cyclical, should we continue with pro-cyclical monetary policy? These are questions that we need to answer. I know that the government has announced its position on exchange rate, subsidy and as you all know, I am a very strong supporter of this administration.
“I would like this administration to succeed. But a friend does not tell the government what it wants to hear. A friend tells the government when he feels it is wrong. So, it is wrong to continue with the fuel subsidy. It is wrong to continue to pretend that you can keep the naira at a certain level, when the price of oil is falling, without depleting your reserves. You have to make a choice.”
Continuing, the Emir noted that with the naira at about N200 at the official and about N225 on the Bureau De Change (BDC) segment, “it does not speak well of us to pretend that the naira is appropriately valued.”
He said the CBN adopted a demand management exchange policy, whereby it had deprived certain industries of imports.
According to him, those that can afford to import are not able to do so because they have been excluded from the market.
“We won’t know the impact of this, until we look at the GDP growth. At the same time we have continued with tight monetary policies. I pursued tight monetary policies. But at that time, we were attracting portfolio flows and we needed to have a stable exchange rate, we need to have a healthy balance of payment situation.
“The portfolio flows are gone, inflation is already upon us. So, we do not need to keep very high interest rate. It is time to loosen monetary policy because that is the only thing that would mitigate the pro-cyclical stance of finance. We need to lower interest rate; otherwise we compound an exchange rate crisis for business, with high borrowing cost and declining demand.
“If we continue along this trajectory, with the weak balance sheet of government and a tight monetary policy, in the face of falling oil prices, we are setting the economy up for a long period of very low growth and we cannot afford that given our population and given our growth rate.
Sanusi also advised the men and women appointed to serve as ministers under President Muhammadu Buhari to always have the courage to advise the president whenever they feel he is not doing the right thing.
He appealed to the incoming ministers not to always engage on insincere flattery of the president, even as he described the set of ministers that worked under late president Umaru Musa Yar'Adua as well as former president Goodluck Jonathan as “courtiers.”
“I do hope this cabinet would not repeat the mistakes of the previous cabinet. Under late president Yara’dua and Jonathan, ministers were like courtiers. I do hope this current breed of ministers would not be courtiers. I do hope people would have the courage to know that loyalty is about telling your boss the truth.
“I do hope people would remember that ultimately, if you are part of an administration and you do not speak when you should speak, then you have forever forfeited your right to speak.
“The president needs help on the economy and it is extremely important to understand that even if you have security, even if you fight corruption, you still need to have jobs, power, you still need to build agriculture, attract investments and that cannot be done if we continue dismissing the view of investors and foreigners who want to bring money into this country,” he said.
Speaking further, the former CBN boss opined that the recent restriction of forex to 41 sectors by the banking sector regulator was hurting the economy. He argued that the only way the naira would be strong was for the central bank “to pump more dollars into the system.”
He explained: “We have no option than to block leakages and stop non-priority expenditure. It is for this reason that we cannot afford to spend all our time talking about the past. It is the time to look at what we are doing now and ask ourselves if the fiscal stance and the monetary stance are appropriate for the situation we are in.
“It is true that the president has made a pronouncement that he does not want the naira weakened, we have ministers and we have governors. It is your responsibility to advise and to tell him that it is not a sustainable policy. This is not the time for two per cent GDP growth, and this is where we are heading to unless we take an urgent step to retrace some of the policies we have pursued,” he explained.
However, he pointed out that the challenges facing the economy presently were not created by this administration. “Oil prices have come down and unfortunately they came down at a time when we are succeeding a government that did not save the revenues when oil prices were high. The biggest challenge I had as CBN governor was convincing politicians that there would be a day when we would regret not saving money when oil price were high, that the leakages in the oil sector ought not to continue and that oil is a commodity that goes up and down. It is a very sad story. It was obvious because it had happened previously. You had high oil prices, high revenue and you were blowing the monies away, and when oil prices crash you don’t know how to save the situation.
“In 2009, we had a huge crisis. Oil prices crashed from $140 per barrel to under $40 per barrel. That was the time I was coming to the central bank. But at that time, the government had a number of advantages because the previous administration had saved a lot. There were fiscal buffers. Then, the central bank and Ministry of Finance could pursue countercyclical fiscal and monetary policies. “Even though we had devaluation, some inflation, even though we dealt with the biggest banking crisis in history, the economy continued to grow and people continued to be employed. But the situation today is different,” he added.
According to CBN figures, in the first two quarters of this year, the country had spent over N500 million on debt servicing. At this rate, the Emir noted that the country might spend over N1 trillion this year, “which is more than the amount budgeted for health, education and defence combined.”
“The government does not have a choice, it must increase taxes and block leakages, but the central bank has a choice and we must make use of the opportunity to try and reduce the damage to GDP growth. If we get back to an era of one or two per cent GDP growth, it is going to be difficult,” he warned.