Money, Money, Money, Everywhere But None To Borrow!

By: Sir Henry Olujimi Boyo (Les Leba) first published in Intro: Last week this column republished “Oppressive Minimum Wage and the Futility of an Increase” it discussed how a rise in minimum wage in an economic climate where the currency is greatly devalued would make no dif­ference to improve standard of living. (See www.betternaijanow.

com for this series and more articles by the Late Sir Henry Boyo) This week’s republication discuss­es the inefficient control of money supply on the part of the CBN and the media’s misrepresentation of how this mismanagement affects local industries and the everyday Nigeri­an. It highlights the added effects of unreasonably high interest rates and the oppressive economic situation the system places Nigerians in. As you read through the below ar­ticle taking note of previous events or rates, keep in mind its year of publica­tion (2017), a clear indication that Nige­ria’s economic situation is yet to improve even after all this time.



It would seem a cynical denial of reality, for anyone, to suggest that, the prevailing, oppressively high, cost of borrowing, is caused by an unexpected burden of too much mon­ey in the financial system. How, one may ask, will price of any commodity remain high when supply of same item is constantly in burden­some surplus? Clearly, such an un­usual market model would certainly defy the law of gravity and the equally ubiquitous law of demand and supply. There are several media reports of Nigerians, who took their own lives when intense pressure to make ends meet, drove them to borrow from un­regulated shylock loan hawks who demand up to 50 percent, MONTHLY return on loans and advances! Thankfully, the institutional banks, for deprived and marginalized Nigeri­ans, do not charge such strangulating cost for loans; nonetheless, the average 6-10 percent/MONTHLY interest rates, charged by Microfinance Banks, still seem rather inequitable and clearly distortional, especially when, signifi­cantly bigger business conglomerates, fervently decry the comparatively more modest 20 percent+ ANNUAL in­terest, charged by commercial banks.

Regrettably, this obvious oppressive structural deformity is, ironically cel­ebrated as, inclusive economic support to the poor! Invariably the beneficiaries of such ‘poisonous’ structural support may re­main terminally, in financial bondage, even while Government’s Treasury is, inexplicably, simultaneously confront­ed with the embarrassing challenge of perennially managing, perceived surplus money supply in Nigeria’s financial system. On Wednesday 20th September 2017, for example, the Central Bank of Nigeria borrowed N215.9bn of such surplus funds, despite the very high 13-17 percent interest rates, offered in a money market, in which commercial banks are major beneficiaries.

Regrettably, proceeds of CBN’s hun­dreds of billions of Naira, bi-weekly borrowing sprees, are often, widely, misrepresented on most media plat­forms as approved loans already legis­lated for funding the deficit in annual budgets. This unfortunate media misrep­resentation, has arguably, distracted public attention from the actual count­er-productive and reckless demolition that Nigeria’s economy has endured for decades, because of CBN’s poor management of its sole mandate to efficiently control money supply. The truth is, that only the Debt Manage­ment Office, is constitutionally man­dated to borrow to fund annual budget deficits; such loans are irrespective of any additional debt incurred by CBN, to reduce the worrisome spectre of surplus money from the market.

Ul­timately, the logical question is, what does CBN, then do, with the Trillions of Naira, it borrows from the market, with such distortional high interest rates, that invariably instigate, com­mercial banks, to in turn, also hike lending rates to their customers? Evidently, commercial banks’ in­come was bolstered, for example, by about N600bn in interest payments, with CBN borrowings to reduce, in­creasingly surplus money supply in 2016; but the question again is, what economic activity, generates this huge, related interest payments? Clearly, the oppressive interest payments not­withstanding, the CBN indeed, does absolutely nothing with its borrowed, bloated caché of Naira; in fact, the Apex bank, simply sterilizes the tril­lions of Naira loans, from any com­mercial or investment application in the economy. Ultimately, however, fresh Naira supply will be minted to pay the heavy interest charges on the sterilized funds, not minding the fresh collater­al of inadvertently, also increasing money supply in the system, to again instigate a new cycle of borrowing to reduce Naira surplus!! “Why would the CBN adopt such fi­nancially reckless and counterproduc­tive measures?” “Why should CBN pay such high interest to borrow money that it has power to print?” The CBN’s counter to these questions, is that, its seemingly negative measures are, in fact, necessary to ensure, prices of goods and services do not continue to rise, to make life, increasingly unbear­able for Nigerians. Invariably, if infla­tion is left unchecked, all incomes will lose much value and a basket full of naira may be required to buy one loaf of bread! But what has inflation got to do with paying up to 17 percent to bor­row money that will NOT be applied to building schools, hospitals, roads, etc.

? Instead of borrowing, why not let these funds remain in the market? Well, Nigerians are clearly familiar with the consumer spending spree during festive and year-end holidays; invariably, the spike in general demand will also instigate higher prices to pur­chase, conversely, the relatively stable supply of goods and services. Basically, higher prices, during these festive sea­sons, are the product of much more money chasing the relatively fewer goods available. Ultimately, inflation, will compulsively spiral, if CBN fails to restrain such irrepressible consumer spending by mopping up (read as bor­rowing) any perceived surplus money supply from the market.

Obviously, with the very lucrative returns of 17percent+ on, such risk free, government borrowings, it is no wonder that private sector investors will have a hard time to obtain credit at industrially friendly rates, below 7per­cent to make their businesses more cost competitive. Meanwhile, official reports, presently show that between January – July 2017, CBN has already accumulated about N3.1Trillion of such oppressive and useless loans through its auctions of Treasury bills.

It is not unlikely that the total debt that will be incurred in 2017, and the relat­ed humongous interest payments, will exceed the N6Trillion+ also borrowed and over N600bn interest paid, primar­ily to banks, in the 2016 fiscal year to re­duce the threat of inflation. Ironically, obviously syndicated reports in both print and electronic media continue to promote the idea that these debts were incurred “to help government fund its budget deficit” and “support commer­cial banks in managing liquidity” (see CBN to borrow N917bn via T/bills in Q4” (Punch edition 14th September 2017 page 25). However, CBN’s intention to addi­tionally borrow a relatively modest sum of N140bn on Wednesday 20th September 2017, was unexpectedly subscribed about three times over with N556bn, and CBN therefore ultimately borrowed N215.

9bn with between 13- 17 percent interest rates. Expectedly, banks will remain in celebratory mood, for as long as such free ‘Awoof money’ flows, even when industries still cry out for a supportive level play­ing ground, characterized by interest rates which do not exceed, for example, 5percent to industrialists and 1percent for any agricultural enterprise. Evidently, the robust latest profit postings of several commercial banks, certainly do not bear true testimony to their serious commitment to re­generate the Nigerian economy with reasonably priced, single digit interest rates to businesses.

Sadly, the sustenance of lending rates between 20-30 percent for private sector, productive enterprise, remains a daunting challenge, that will invari­ably impede progress towards a diver­sified and socially inclusive economy. This reality is abundantly clear, par­ticularly, when CBN keeps repeating the same strategies that have failed, for decades, to provide the required solutions, in our economy. Regrettably, it seems our collective national intellect and awareness has remained under a spell of distraction, from the source of the poison, in our fumbling strategy for inclusive eco­nomic growth.

Alternatively, it could also be the more mundane blind faith of the Nigerian elite, that the man­agers of our fragile economy are on course, despite the continuous appli­cation of the same strategies that have sustained irrepressible inflation and interest rates beyond single digits, with unstoppable growth in unemployment and an obtuse exchange rate structure, that hardly responds positively, in fa­vour of the Naira, even when fortu­itously bountiful CBN reserves, could cover over 20 months of imports, when crude oil sold above $140/barrel. Instructively, CBN has sole author­ity to print and manage Naira supply; thus, if the stock of Naira always remains in troublesome excess, then there are only two guilty parties, i.e.

the legitimate printer or the counter­feiters!! Question however is, why does CBN liberally print Naira and further spur Naira liquidity surplus with in­appropriate, mandatory cash ratios for banks, only to later cry wolf and turn round to pay reactionary interest rates, to once again borrow and reduce the perceived excess stock of money that has resurfaced once more in the financial system? So who said there’s no money to borrow? SAVE THE NAIRA, SAVE NIGE­RIANS!!!.