Former Governor of Central Bank of Nigeria, CBN, Professor Chukwuma Soludo, has expressed worry over the public finance system, lamenting that recurrent expenditure was in excess of total revenue.
Soludo also accused the current leadership of the apex bank of playing politics with foreign exchange and monetary policy, which has negatively impacted on Nigerians and businesses.
He called for the elimination of multiple exchange rates and forex restrictions on 41 items.
In his keynote address on Wednesday at the 8th annual Pan Africa Investor conference, organised by Renaissance Capital, in Lagos, Soludo warned CBN to: “Stop playing politics with forex and monetary policy. Forex policy aggravated the impact of oil shock to drive the economy into avoidable recession.
“With relative stability in forex and more so improved oil sector, economy will be out of recession, albeit from a very low base (GDP compression in US $); but collateral damage of previous errors will linger for a while (100 steps backwards but only 15 forward) as confidence and credibility take time to be restored.
“Sustained macro stability will be decisive for the success of the Economic Recovery and Growth Plan, ERPG. The first is that we must stop playing politics with Foreign Exchange, FX, management.
“The second thing is rebuilding CBN’s credibility for confidence to return to the system over the medium time. CBN must then transparently commit to clear objective and make clear its instruments.”
On how the CBN can eliminate the exchange rate regime, he noted that the first step in that direction is to lift the ban on 41 items ”that they said were ineligible for forex”.
“You cannot unify the forex market, once you begin to discriminate and do all those kind of things for eligible transaction
“There are two ways if you don’t want things to come in: you use the exchange rate and then you use the trade policy, raise the tariff.
“If it’s expensive for people to import, they will not import these items, but we have had this regime before, this whole concept of multiple rates is not advisable.
”You can with just one policy tomorrow eliminate them, then have one single market for all of this and then you have the interbank market to work, period.”
On Fiscal policy, Soludo stated: “The point is that at the fiscal level, the major constraint is politics. Here you have aggregate government revenue to three to five percent of Gross Domestic Product, GDP, at the federal level, one of the lowest in the world.
“Now ERGP target to raise it to 15 percent, let see how that goes. How do we get there? Because if the fiscal revenue gets anywhere, even 10 percent of GDP, much of the fiscal crisis would go.
“Now you are adding debt service to current revenue in excess of 60 percent, about 66 per cent that’s clearly not heading anywhere.
“You have to do two things to put back and fix the broken public finance, the revenue thing has to go up and forex is part of that equation and then the task reforms that must follow but in terms of breath depth and collection efficiency and then the composition of government spending must alter fundamentally for us to get anywhere.”
Former Governor of Central Bank of Nigeria, CBN, Professor Chukwuma Soludo, has expressed worry over the public finance system, lamenting that recurrent expenditure was in excess of total revenue.
Soludo also accused the current leadership of the apex bank of playing politics with foreign exchange and monetary policy, which has negatively impacted on Nigerians and businesses.
He called for the elimination of multiple exchange rates and forex restrictions on 41 items.
In his keynote address on Wednesday at the 8th annual Pan Africa Investor conference, organised by Renaissance Capital, in Lagos, Soludo warned CBN to: “Stop playing politics with forex and monetary policy. Forex policy aggravated the impact of oil shock to drive the economy into avoidable recession.
“With relative stability in forex and more so improved oil sector, economy will be out of recession, albeit from a very low base (GDP compression in US $); but collateral damage of previous errors will linger for a while (100 steps backwards but only 15 forward) as confidence and credibility take time to be restored.
“Sustained macro stability will be decisive for the success of the Economic Recovery and Growth Plan, ERPG. The first is that we must stop playing politics with Foreign Exchange, FX, management.
“The second thing is rebuilding CBN’s credibility for confidence to return to the system over the medium time. CBN must then transparently commit to clear objective and make clear its instruments.”
On how the CBN can eliminate the exchange rate regime, he noted that the first step in that direction is to lift the ban on 41 items ”that they said were ineligible for forex”.
“You cannot unify the forex market, once you begin to discriminate and do all those kind of things for eligible transaction
“There are two ways if you don’t want things to come in: you use the exchange rate and then you use the trade policy, raise the tariff.
“If it’s expensive for people to import, they will not import these items, but we have had this regime before, this whole concept of multiple rates is not advisable.
”You can with just one policy tomorrow eliminate them, then have one single market for all of this and then you have the interbank market to work, period.”
On Fiscal policy, Soludo stated: “The point is that at the fiscal level, the major constraint is politics. Here you have aggregate government revenue to three to five percent of Gross Domestic Product, GDP, at the federal level, one of the lowest in the world.
“Now ERGP target to raise it to 15 percent, let see how that goes. How do we get there? Because if the fiscal revenue gets anywhere, even 10 percent of GDP, much of the fiscal crisis would go.
“Now you are adding debt service to current revenue in excess of 60 percent, about 66 per cent that’s clearly not heading anywhere.
“You have to do two things to put back and fix the broken public finance, the revenue thing has to go up and forex is part of that equation and then the task reforms that must follow but in terms of breath depth and collection efficiency and then the composition of government spending must alter fundamentally for us to get anywhere.”
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