Thursday, 19 November 2015

Former CBN Governor, Charles Soludo faults implementation of Treasury Single Account (TSA)

Prof. Charles Chukwuma Soludo
As government agencies start to settle down to the loss of financial autonomy, a lifeline may have been thrown their way, with the recommendation by a former Central Bank of Nigeria (CBN) Governor, Prof. Charles Chukwuma Soludo against leaving huge amounts of idle cash in the CBN at a time the economy is in desperate need of stimulation.

Soludo, who is the promoter of the African Heritage Institution (AfriHeritage), Enugu, gave the advice in a 21-page paper titled: “Can a New Buharinomics Save Nigeria?” which he delivered at the third anniversary lecture of the RealNews magazine in Lagos yesterday.
The former Anambra State gubernatorial aspirant said: “The Treasury Single Account (TSA) is a great initiative, and I congratulate President Muhammadu Buhari for that. However, we don’t have to return to the past of having every penny of government lying largely redundant in the central bank.”
He pointed out that in an economy desperately in need of stimulation, piling up idle cash at the CBN was not sound economics, just as he advised that the government should deploy technology and transparent rules to implement a hub and spoke model of TSA whereby CBN is the hub while the commercial banks remain the spoke.
“Of course there are some benefits of keeping it at CBN, including possible anti-corruption outcomes but as a proverb says, you don’t set your house ablaze because of the irritation of a rat in the house. We can rid the system of corruption and realise all the benefits of TSA but still not starve the economy of the necessary liquidity,” he said.
Also speaking on the retention of the fuel subsidy regime, Soludo stated Buhari has the “moral authority and legitimacy” to quickly remove fuel subsidy and privatise the country’s refineries.

His recommendation came on the heels of the N465.6 billion supplementary budget submitted by Buhari to the National Assembly on Wednesday, of which subsidy for fuel put at N413.4 billion, accounted for 80 per cent of the budget.

He said the fundamental case against subsidy removal was not economic, arguing that a lot of the citizens do not trust government to optimise the use of the proceeds for their welfare.
“If Buhari does not deal with these issues NOW, I wonder when, if ever. Now that private refineries are coming up, it is time to privatise public ones. It should have been done years ago. The huge benefits are not only economic, but also an anti-corruption move.
“Let government produce a credible agenda of reforms for the sector and let us have another focused public debate on this subject.
“You may be amazed that even the so-called ‘man in the street’ now understands that it no longer makes sense. The fiscal cost of keeping it is unjustifiable and unsustainable,” he said.
The former CBN governor also advised the federal government to maintain the independence of the central bank in order to retain its credibility and confidence of the markets.
He said: “Another minor point relates to communication and body language that jolts the market and undermines confidence in the monetary and financial system. When it was widely publicised on two different occasions within three months that ‘presidency directs central bank to…’, it got many players in the economy seriously worried.

“For sure, central bank is not a government unto itself, and despite the statutory ‘autonomy’ or ‘independence’ of the Bank, it must work closely with the presidency and economic agencies to coordinate macroeconomic policy.

“Everyone knows that the central bank or INEC cannot survive without the support and active collaboration with the presidency but no one wants to hear that the president has directed INEC on how to conduct an election.

“There is a reason the APC promised in its manifesto to ensure CBN independence. A central reason is to give the market confidence that the CBN will always act professionally and independently to ensure price and financial stability.
“It is to avoid the Africa’s Idi Amin phenomenon whereby the government of the day may ‘direct’ the central bank to ‘print’ money or to take other steps injurious to the economy because it wants to retain power.

“When the market knows or believes that the central bank is merely an extension of the presidency and takes daily ‘directives’ from there, the Bank loses credibility and its monetary policy committee meetings become meaningless. My fear is the precedence: we can never imagine how far future presidents can go in ‘directing’ the central bank on what to do with our commonwealth.”
Also commenting on the country’s exchange rate strategy, the former CBN governor said: “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 financial 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 Buhari as widely publicised in the media. Really?

“Unfortunately, the debate around the issue has been wrongly trivialised as whether to ‘devalue’ or ‘not to devalue’ the naira. Much of what I have read have little basis in theory or empirical evidence or even counterfactual analysis but a rehash of the sterile but polemical diatribe between ‘neo-liberals’ and ‘neo-socialists’, or simply selective partial analysis. This is not helpful and diverts attention from an otherwise serious policy issue.”
He warned that the country was back to a form of import licensing regime, saying that “portfolio carrying agents” are back in town to lobby for forex.

According to him, while the arbitrary list of banned items had left the economy haemorrhaging, those reaping the rents had been lobbying to “make their gains permanent, while others are lobbying to join the new rent industry”.
“Oil rent is drying up and the new source of easy money is forex. With a black market premium of about 20 per cent a successful round-trip creates instant jackpot. Furthermore, if a group can get items in their sector ‘banned’, they will reap the monopoly rent instantly.

“If you stretch the logic of the ‘ban’, it will be difficult to justify allocation of forex for anything. After all, you can argue that denial of forex should ‘force’ Nigerians to produce just any good for that matter at home or patronise substitutes,” he said.

Credit: ThisDay

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