Unhealthy relationship between the federal government and CBN

Muhammad Sanusi II, the Emir of Kano and former governor of the Central Bank of Nigeria, recently weighed in on the bizarre economic management tactics of the federal government and the relationship between the government and the Central Bank of Nigeria. The emir and former CBN governor claims the CBN has been illegally funding the government.  According to him: “CBN claims on the FGN now tops N4.7 trillion – trillion — equal to almost 50% of the FGN’s total domestic debt. This is a clear violation of the Central Bank Act of 2007 (Section 38.2) which caps advances to the FGN at 5% of last year’s revenues. Has CBN become the government’s lender of last or first resort?” The emir further wondered why the bank is lending money to a federal government that claims to have trillions in its treasury single account (TSA).

Certainly as Renaissance Capital, a financial advisory and research firm noted, “Central bank financing tends to be frowned upon because it expands money supply and adds to inflation. Nigeria’s narrow money year-on-year (YoY) growth has gone from a negative one per cent in October 2015, to 50 per cent a year later. And in that period YoY inflation accelerated to 18.3 per cent in October, versus 9.3 per cent, and the naira weakened, against the dollar in the parallel FX market, from N227/$1 to N450/$1.”

Emir Sanusi also described the relationship between the federal government of Nigeria and the central bank of Nigeria as no longer independent and unhealthy. Coincidentally, we have run a series of editorials lamenting on what appears to be the erosion of the independence of the CBN and its monetary policy powers by an overbearing executive branch. We had noted how both the body language of the President and the actions of the CBN point to a bank that is continually pandering to the antique desires and wishes of a president. Sadly, those desires and wishes (we dare not call them policies because they are not) are doing great harm to the economy and making it uncompetitive for investments and trade. Glaring evidences are the economic recession, forex scarcity, the fate of the naira, inflation and loss of jobs and manufacturing capacity by firms and industries.

But like the government has been responding to all those who admonished it to pursue rational and sensible economic policies, the government has been quick to call Emir Sanusi’s remarks ignorant and devoid of facts. Garba Shehu, while responding on behalf of the President, said the Emir “doesn’t have his facts as far as those issues are concerned.” While admitting that the government indeed has overdrawn its Central Consolidated Account, it is within limits.  But data drawn from the CBN’s own base showed that the CBN has indeed lent as much as N4.7 trillion to the federal government in 2016.

Certainly the Emir, a main supporter of the President and his party during the 2015 knows what he is talking about. The government’s attempt to characterise him as ignorant and the CBN’s own vitriolic attack on the former governor will not hold. Printing money to fight inflation is an archaic policy and will not get the country out of the woods. A standard advice from life coaches is that one should stop digging when in a hole. But apparently, this government isn’t taking that advice. It has continued to dig in even when it is apparent that its actions are deepening Nigeria’s woes.

For the CBN that has easily surrendered its independence easily and without a fight to politicians, an action against the law and all rational judgements, history will judge its leadership at the right time.