7 hours Ago By Guardian Nigeria
At virtually all levels, many developmental initiatives have turned ‘white elephant projects’ or totally abandoned due to the crashing purchasing power of annual budgetary provisions year-in-year-out. Government officials merely move around bandying the humongous sums in billions and trillions that have been ‘spent’ on various projects. Although there are several other factors that contribute to the abandonment of projects, the fast crashing real value of budgetary allocations remains critical.
The hyperinflationary trend in Nigeria, triggered by fuel subsidy removal, and the full floatation of the naira which led to its sudden massive devaluation have combined to make projects planning and execution traumatic. Distorted budget cycle, now entrenched by the Tinubu administration, has come to worsen the uncertainty created by ‘money illusion.’ Rather than having the annual budget run from January to December, the cycle has now also turned unpredictable under the current administration.
This has resulted into several reviews of projects (with contract sums rising), and rolling them over through many (annual) budgets. And many of the projects are eventually abandoned! Beyond propaganda, however, does the Government really have so much money for its programmes and activities? If the Government has so much money (as the trillions of naira shows), why is it going cap in hand, borrowing money from everywhere across the globe? Why is the Government imposing all manner of taxes, duties and levies on (mostly hitherto free) public goods, services and utilities? As the purchasing power of the citizenry is fast crashing, courtesy of rising inflation, Government directly or through its agencies keeps hiking existing tax rates or imposing new ones. For instance, in the contentious tax bill before the National Assembly, the Value Added Tax (VAT) rate is being raised from 7.
5 per cent to 10 per cent. Being a consumption tax, hike in VAT rate automatically translates to ‘milking’ the consumer the more. ‘Money illusion’ has, in a way, led the CBN to construe the ravaging hyperinflationary trend in the country as a monetary phenomenon, where ‘too much money is chasing few goods’.
Yet, the runaway inflation is more of a ‘cost push’ problem, because of the rising cost of all productive activities—including ‘imported components’ of such costs. The apex bank believed there has been an excess of money in circulation, leading to increased demand for a ‘limited’ supply of goods and services. With this as a background, the CBN has been taking a tight monetary stance, including raising the Monetary Policy Rate (MPR) to highest level in recent years: from 18 per cent in June 2023 to 27.
50 per cent at end-2024. An almost 10 per cent hike in 18 months. The CBN also raised the Cash Reserve Ratio (CRR) to ‘drain’ cash from the commercial banks, and weaken their credit creation capacity.
But this, plus the high MPR, raised the cost of credit to private sector operators—and indeed, pushed loans beyond the reach of most businesses—especially the Small and Medium-sized Enterprises (SMEs). Apparently ensconced in the so-much-money backdrop, the CBN has been issuing bonds and Treasury Bills at mouthwatering rates—attracting both local and foreign portfolio investors (FPIs)—all to the detriment of the real sector in the country. The FPIs, as ‘hot money’ have been flying in and out of the country at indeterminate paces, and sustaining the macroeconomic volatility.
Apart from the CBN, almost without exception, all other Federal Government agencies have continued to impose or hike charges for their services to the populace. And they are being celebrated for the trillions of naira they are raking in for the Government. Nigeria Custom Service (NCS), Nigeria Immigration Service (NIS), Nigerian Ports Authority (NPA), among others, have been exceeding their ‘revenue targets’—leaving the citizenry poorer.
These huge (unexpected) revenues from these agencies, as explained by President Tinubu, were what moved him to go back to the National Assembly for a top-up to the 2025 Appropriation Bill, as it was undergoing legislative consideration. This unusual step shows that Mr. President believes that the bigger the money budgeted, the more ‘successful’ the budget would be.
And we ask: where are the impacts of the previous budgets? By the same deduction, the so-called ‘more money’ in the hands of the state governors does not amount to much in real terms. So, rather than flaunting the ‘fat’ FAAC monthly allocations, the Federal Government should begin to address the root causes of the crashing purchasing power. Why has inflation been rising, and remained high even after the rebasing of the Consumer Price Index (CPI)? After rebasing, the CPI—which measures inflation rate—was brought down from end-2024 level of 34.
80 per cent to 24.48 per cent in January 2025. The rebasing which amounted to a mere change in the methodology used by the National Bureau of Statistics (NBS), led to the ‘drop’ in the CPI value.
It will therefore, be another type of illusion for the Federal Government to begin to celebrate the so-called drop in inflation rate. After all, the 24.48 per cent for January 2025 is far above the sub-Saharan Africa average of five per cent (‘Africa Pulse’ report) in 2024.
And, in the advanced economies (UK and U.S., for instance), inflation rate is hardly above three per cent.
In dealing with the ‘money illusion’ challenge, therefore, the ball is squarely in the court of the Federal Government. This is because whatever is the state of the Nigerian economy today is largely policy-induced: mainly unintended upshots. So, let’s begin to get real! Concluded.
Okeke, a practicing economist, business strategist, sustainability expert and ex-Chief Economist of Zenith Bank Plc, Lekki, Lagos. He can be reached via: [email protected] or (08033075697) SMS only..
