Former Governor of the Central Bank of Nigeria (CBN) Professor Charles Soludo has shown over the years that he is never scared to air his views. He has spoken again, now faulting the implementation of the Treasury Single Account (TSA) by the Federal Government and the policy regime of foreign exchange restrictions of the CBN.
Soludo spoke on Thursday as a guest lecturer at the third anniversary lecture of online magazine, Realnewsmagazine.net in Lagos. He stated that while the TSA could restore sanity and transparency into Nigeria’s financial system, the initiative could be better deployed. He stressed that “concentrating the cash at the CBN when the economy needs reviving is not sound economics.”
Speaking on the topic: ‘Can the New Buharinomics Save Nigeria?’ the former CBN boss also faulted the policy regime of foreign exchange restrictions being implemented by the CBN including the ban on 41 items on foreign exchange access and the debate on whether to further devaluate the naira or not, arguing that such policies will actually cause the economy to implode, worsen unemployment and increasing poverty level.
“For the better part of this year, the external shocks to the economy have been complicated or accentuated by a gamut of the “tried and failed” command and control policy regime: de facto fixed exchange rate, largely fixed CBN monetary policy rate, crude capital controls, veiled form of import bans through a long list of ‘ineligible for foreign exchange’, de facto scrapping of domiciliary account established by law, etc. At first, I thought this was the usual kneejerk response of policymakers to a ‘sudden’ shock. We tried a milder variant of this for a few months during the 2008/2009 unexpected/unprecedented global crisis (with global liquidity squeeze and massive capital flight) but even then, it was communicated as a ‘short-term crisis response’ and it was quickly dismantled. We now know what works and what doesn’t even at a time of crisis.
“As one reads the confusing statements from government in the media: ‘We won’t devalue’, ‘we won’t devalue for now’, and the emotional debate about ‘nationalism’ around issues of import ‘bans’ and capital controls, one wonders whether it is still a ‘short-term crisis response’ or a permanent shift back to the old policy regime of pre-1986. Even if the government initially intended it as a short-term measure, interest groups have emerged and are lobbying to make the policy shift permanent. To add to the confusion, the policy is communicated as a “directive” from PMB as widely publicised in the media.”
“In the specific case of Nigeria currently buffeted by a terms of trade shock with micro imbalances especially fiscal and current account deficits as well as supply side constraints and with the economy skidding to a halt with rising inflation and unemployment, the question is, how should relative prices or asset prices including exchange rate and interest rate adjust to reflect as well as shape whatever economic fundamentals? External shocks do not kill an economy.
“How you respond will determine whether you worsen it or meliorate the terms of trade shocks. That is what we are facing, the classic one. And how you respond to terms of trade shocks depends on whether the shock is from the monetary, nominal shock or whether it is from the real side shocks. And I would say on this micro economic theory and evidence around the world are pretty much unambiguous. That faced with terms of trade shocks, countries with flexible exchange rate regime adjust faster and adjust better with less negative impact on growth and employment than those with fixed exchange rate. This is global evidence, pretty much unambiguous for countries facing terms of trade shock, that countries that allow relative pricing including exchange rates to become the key adjusters when faced with terms of trade shock have always almost done better than those than resorted to exchange rate fixing and distorting controls.”
“In theory, if you don’t allow prices to adjust, quantities will adjust and the quantities that will adjust are output and employment. That is the experience we have had in Nigeria over the years. And that is what is happening today. Output and employment are adjusting with vengeance. My thesis is that from Nigeria’s own evidence, that the current policy regime is inconsistent with the objectives of creating jobs, growing income and reducing poverty. Nigeria since 1973 can become a laboratory. Since 1973, we have become episodes of positive and negative price shocks. If you divide the episodes of positive oil price shocks, episodes of negative price shocks and also match them with responses of policy regimes, the evidence is that, in all cases, fixed exchange rates with controls, the economy has always done worse in that regime than in under flexible regime.”
Speaking further, he said: “From Nigeria’s evidence, current policy regime is inconsistent with objective of growth, job creation and poverty reduction. The current economic hardship is largely our choice and not just oil price shock: The current slump of the economy was predictable and largely avoidable. Just as it happened in 1981-85, the economy has been on a tailspin. There is now about 4 per cent growth shortfall relative to past trend, and this cannot be explained by fall in oil prices alone. For the first time since 1990s, per capita growth rate (on annualized basis) is now negative implying that poverty is also escalating; capital market has lost trillions, inflation and unemployment are on the rise. JP Morgan has delisted our local currency bonds and Barclays is threatening same, while the cost of borrowing for Nigeria rises. Foreign capital is on the run, while domestic savings is miniscule. It was ‘headline news’ when FG paid October salaries, while states are steeping in massive debt.”
“Policy choices entail costs and benefits, but the preference of one to another should be based on the “net positive effects”, depending on the stated objectives. To sustain the current arbitrarily pegged exchange rate will require a steep rise in interest rate and squeezing of bank credit to the private sector. Alternatively, intensifying the ever opaque and distorting controls and ‘bans’ will also severely harm the private sector. I will be surprised if the productive sector is not already feeling the heat. The irony is that it is the small businesses (which have no voice or power) that are suffering the most. Many are simply being choked to death by the ‘controls’. To repeat, the current policy regime is inconsistent with the objectives of creating jobs, growing income and reducing poverty,” Soludo said.
16 Comments
… well, this is what happens when a Banker leaves the helm of a Bank to become CBN Governor. He will always be sympathetic to his mentor who is the Chairman of his former employers and will never sanction them for any percieved wrongdoing, but will instead work around them to make it seem less criminal.
How can you play trial and error with a fragile economy and put all the blame on Niger Delta and Oil prices? Are we the only oil producers? How come Iran, who suffered decades of severe sanctions and currency restrictions, was able to come out of it and immediately purchase $75B worth of commercial aircraft alone?
And don’t tell me size of the population. How much oil does India produce? Were they also not a former colony of Gross Britannia? Is Nigeria 12 years behind India (seeing as India got their independence 12 years before Nigeria).
And besides, Indians are more corrupt than Nigerians.
The problem of Nigeria is simple: ITK and DKJ – I Too Know and Don’t Know Jack – They complement each other. Or in the layman’s language – Oversabi!
And then there’s the Senators and Reps! End of discussion.
hear, the architect of consolidation is talking about unemployment and small businesses despite constitutionality of TSA .Democracy is good
Man of poor judgment. Bane of Nigeria nation. You had been in Nigeria and thought the present mallam was is qualified to appreciate these points you are making or care that he is ignorant of them. You helped foist this person on us unfortunately the consequences are not with you, you have escaped poverty. So please keep your views and let Nigerians suffer in silence
Your comments are bereft of intelligence. You ought to keep your garbage views to yourself rather than spill it out. Likely you are one of those who purchased your higher education the ‘backyard way.’ Shhhh, be silent and learn when elders speak so you don’t expose your mediocrity.
Elders? another dumb idiot carried away by ageism
Experience we know is the best teacher. I think the present government should have a sound rethink on their economic polices. Experienced hands should be employed no matter their tribe and political inclinations. We don’t need assumptions or theories for now rather what Nigerians want is result.
There is absolute hunger and unemployment in the land as of today. Nigerians did not bargain for this kind of ill-treatment from the government as well as the man Buhari whom they trusted and voted for. Buhari automatically changed his slogans and initial musics. Something must be done urgently to forestall this present predicaments though for me it’s a good lesson to all Nigerian populace.
This government should as a matter of urgency get us out from this plague. We are currently tied of this Egypt and would not want to see it again. We are in a computer age and Nigerians should from now henceforth think like 21st century generation. All old wines should not be mixed with new wines to avoid contamination. A stitch in time saves nine.
Soludo’s analyses and conclusions are based on tested economic theories and evidences from practice, with special emphasis on evidence from Nigeria’s documented experiences. Command and control economies always ultimately falters, imposing severe hardships on all economic agents. As an aside, It would appear that China has defied this logic. However, a closer look at Chine reveals a carefully and skilfully managed economic policies exhibiting pronounced free market tendencies at the macro and micro levels. Perhaps Russia offers a better lesson on the failures of command and control economies: gyrating economic growth swings based on international commodity price conditions, not rising domestic productivity, which China has manifested.
A clear lesson for Nigeria is the need to use, if it must, short-lived monetary and fiscal control mechanisms and to phase these out soonest possible, allowing market driven policies, including market determined exchange rates to modulate demand for foreign goods. When the oil price boom arrives, Nigeria should save for the rainy day. In effect, Prof Soludo has done his home work and has also generously shared the emanating conclusions with all and sundry. One would hope that President Buhari’s economic advisers would have the humility to reassess their approach to economic management and adjust accordingly, drawing from the available evidence.
However, i am afraid to say that so long as the current administration continues to allow politics to trump sound economic management principles and practices, Nigeria’s economic woes will worsen, accentuating the economic hardship that is bitting every Nigerian so hard!
Kudos to Prof. Soludo a great researcher and applied economist. It is quite unfortunate that you made this prediction virtually a year ago. Presently the Economy is in recession due to lack of clear economic policy that can move the Nigerian economy forward. It is crystal clear that President Muhammadu Buhari Administration lacks basic principles of micro and monetary economics. An elementary economics students knows at the beginning of Buhari administration that his economic policy on the foreign exchange, devaluation of the naira, out right ban on importation of essential commodities like rice and other items without sufficient production at home for consumption would backfire. The reality is what we have on ground.
In my own opinion, Buhari should as a matter of urgency hire and yield to Advise of Economic Experts in fixing the economy back to the level he met it. During APC Presidential campaign,he said he is going to make USD1 to equal N1. So, I now wonder, where Buhari got that Knowledge from during his presidential campaign but now implementing economic policy that further worsened our unabated circumstances, can we say it is intentional? May God help us. If Buhari refused to listen Economic Experts Advise that will take the country out of recession, I think is high time Nigerians refuted his harsh economic policies by sending him and his economic team packing. Millions of Nigerians can no longer tolerate suffering for Mr. President’s inefficiency in handling economic issues, and stop the blame game on PDP but rather he should face reality.
Single treasury account is not the problem I support it 100%. There are many ways to inject the money back into the economy. We can’t afford to go back to those days were money had too many outlets
Very nicely and succinctly said Professor Prophet Charles Chukwuma Soludo.
What you predicted will happen to the economy almost one year ago is now in full swing.
Our economic policies, if any, are just not working for our benefits. Well, the government has found how to fund the 2016 budget deficit; the abysmally low exchange rate of the Naira has provided them enough funds to run the budget and pretend that nothing is wrong with Nigeria. But, for how long will this last?
I pray that the voice of reason and professionalism prevails in Nigeria so that we can come out of the woods by doing the right things to stimulate the economy and promote mercantilism. Otherwise, I pray for Nigeria my country.
How will Mr Buhari understand all this great suggestions from Prof. Soludo. The president intellectual ability, education and functionality is quite linear. Economics is a social science, it involved so many thing. He does not know what internal and external economics factors are neither does he knows some factors that stimulate economy growth. This is president biggest problem. Can he read some lines of statement the answer is yes, but does he understand it I don’t think so. He might have character but for a nation like our to develop he need skills and competency. Unfortunately, this keys ingredient can’t be acquire any longer by Mr president because of his age. He might like the numerous suggestions but he just not understand how to put it to work. His old, and the level of his education is far behind today reality. To be a president of a country you need character, skills, competent, honesty and love for your country. This is the problem.
Let us call a spade a spade my people. Our beloved Country, needs Globally and really seasoned and Tested Economic Chiefs , the likes of Professors Charles Soludo, Dr, Ngozi okonjo Iwuala etc. to turn the table of this National Economic Recession for the interest of the poor under privileged Citizens of Nigeria whose Salaries and incomes have been crushed to an unbearable low values compared to the present rate of International Currencies. Frankly Speaking, i wished that the APC Government of the day led by PMB, will bring our Economy back to the level of the common man on the street as it used to be in the last few years, That is N100/$ or at worst N150/$. APC campaign train gave us such hope,but what we have been given so far is no where close to their campaign promises to Nigerians, which shows that our beloved Giant Economy has long past the level of these APC guys we voted for, since they where unable to start making our lives better from where they met us. they have rather plunged us into poverty of variant degrees. Nigerians are not supposed to be given the cock and bulls stories of who and who had caused all of these issues in the past, and blames on who have caused poverty and sever hunger in our land today. We have voted the best into power and we don’t deserve stories. This is not a better Government than the past, judging from the present uncertainties plaguing our people now. inefficiency and incompetency seeks excuses and blames. The Government should rise to the challenges and return Nigeria if possible , back to where he met her, who knows, God may have mercy on us and redeem our Economy back to a level where a family head whose salary income is N50,000 /month can manage to pull along with his family. As it is today we have more than 70million Nigerian family Heads in that category. This is no life, lets call a spade a spade. Nigeria is the only country we have . Those who has nothing to offer the people should steer away from wrangling control of our God given natural minerals/ crude oil resources which is what they seem to really be interested in. Being interested in becoming President or getting into any other mouth watering juicy position is very very different from performances involved in such positions. If the President love us as he claims, and Love Nigeria also, Let him come up with an all embracing National character, void of these regional selectivity style of Leadership, whether voted for or not, the whole Nigeria is His constituency as the C IN C . Let him start to put the right materials into the jobs and forget about tribalism now. Employment based on tribalism and pronounced party favor certainly will be creating divisive tendencies more into the minds of the people, since we are no more under military regime, the dividends of democracy will still be far from the people if President fails to put Nigeria first before personal agenda.
I pray and wish that this APC Government of trial and error which I said earlier was a National Mistake, calamity and Catastrophe which unfolding events have shown to be true will swallow their pride, admit that they are clueless, and have woefully failed and look for globally developed brains like Soludo to come and help them, instead of trying shamelessly and embarrassingly to blame the PDP as failures always do. looking for who to blame for their failures. if they refuse to do the needful. let Nigerians who love this country pray earnestly to God Almighty to bring His own broom and sweep them out
Man of God! God is already sweeping through and until he swept out the least of them. Do you remember when David killed Goliath, the remaining Palestinian run away, the same thing will happen to them, God had heard the Cries of his people, and stepping in to intervene.
Sound and objective economic analytics!It’s really a product of painstaking and thorough research,not the usual idealism and assumptions policymakers and government operatives serve us in the media,expecting us to take them as given.Even one with an average knowledge of economic issues and arguments can relate to your positions.
God have your way.