Nigeria’s Central Bank and Money Printing: Beyond the Political Brouhaha

Mixed reactions have trailed Nigeria’s public financial sector since Edo State, Governor Godwin Obaseki on 10 April 2021 disclosed that the Federal Government printed N60 billion as part of the federal allocation for March. This earth-shaking disclosure was made during the state transition committee stakeholders’ engagement.

After four days of anxiety, as the public waited for government to confirm whether the allegations were true or false, the Ministry of Finance on 14 April 2020, finally said that Godwin Obaseki was “lying through his teeth”. Addressing the issue at the Federal Executive Council (FEC) meeting in Abuja, the Minister of Finance, Zainab Ahmed said the governor’s comments were unfortunate and a tissue of lies. In her words, “The issue that was raised by the Edo State Governor for me is very, very sad because it is not a fact. What we distribute at FAAC is revenue that is generated, and in fact distribution of revenue is public information. We publish revenue generated by FIRS, the customs, and the NNPC, and we distribute at FAAC. So, it is not true to say we printed money to distribute at FAAC. It is not true.”

Contrary to Obaseki’s depiction that the country’s financial status is in such a state that it will take the grace of God to pull out from the doldrums, the Finance Minister insisted that the nation’s debt profile is ‘still within sustainable limit’, but stated that revenue must be improved to enhance capacity for debt servicing and running the government.

The revelation by the Finance Minister came as a huge relief for quite a number of Nigerians who were already dissecting the implications of Obaseki’s exposition, especially in view of an economy that was already in dire straits.

The following day, on 15 April 2020, the Edo State governor responded, urging the Federal Government to desist from chicanery. While advising the government to be more fiscally responsible to save the country’s future, Obaseki posited:

“Rather than play the Ostrich, we urge the government to take urgent steps to end the current monetary rascality, so as to prevent the prevailing economic challenge from degenerating further.

“We believe it is imperative to approach the Nigerian project with all sense of responsibility and commitment and not play to the gallery because ultimately, time shall be the judge of us all.”

While the Edo State Governor did not counter the rebuttal of the Ministry of Finance outright, the undertones of his rejoinder were very clear that his claims were true and the Federal Government was only trying to save face.

The Governor of the Central Bank of Nigeria, Godwin Emefiele, attempted to salvage the situation, and did so by coming clean on the state of the economy. Emefiele said it was the personal reserve of the Central Bank of Nigeria to print money and lend it to the government as he berated the claims by Obaseki as “overheating the polity, unfortunate and totally inappropriate”. His words:

“It is very inappropriate for people to just give some colouration to the word ‘printing of money’ as if it is a foreign word coming from the sky. The concept printing of money is about lending money. That’s our job – to print. It’s about lending money and so there’s no need to put the controversy about the printing of money as if we are going into the factory, printing Naira, and start distributing on the streets.

“In 2015/2016, we were in a similar (fiscal) situation, but it is far worse today. We provided a budget support facility to all the states of the country and that loan remains unpaid till now. We are going to insist on the states paying the loan back since they are effectively accusing us of giving those loans.

“Most countries of the world today are confronted by not just the health crisis from the COVID-19 pandemic but also economic crisis. I keep saying this: it would be irresponsible of the Central Bank of Nigeria or any Central Bank to stand idle and refuse to support its government at this time. Whatever we do in Nigeria is being done in any clime.”

The CBN Governor further stated that “Nigeria is unfortunately in a very bad situation and we cannot pretend about it in the sense that we are facing problems about productivity output which is gross domestic product (GDP). We are working very hard to see how we can get our heads above water. We are also concerned with issues of inflation.”

Following the CBN Governor’s revelations, Nigerians called for the sack of Zainab Ahmed for denying the allegations in the first place. The Progressive Governors’ Forum however came out on 18 April 2021 to shed light on the nature of things. The forum in a statement signed by its chairman, Governor Abubakar Atiku Bagudu of Kebbi State said:

“Given the significance of the statement from a sitting governor and the possible negative impact it has brought to the credibility of both the federal and State government in managing government finances, the Forum is obliged to put a statement out.

“To set the records clear and to the best of our knowledge, the total distributable statutory revenue for the month of March 2021 was N596.94 billion. Due to the shortfall in gross statutory revenues by N43.34 billion compared to the previous month, an augmentation was made in the sum of N8.65 billion from the Forex Equalization Fund Account, which brought the total distributed revenue to N605.59 billion.

“Federation revenues distributed monthly primarily consist of mineral revenues from the sale of oil and gas, as well as non-mineral revenues from customs and excise duties, company income tax, and value-added tax.”

Nevertheless, the reality is that government is not generating enough revenue to keep the state running which spells trouble, coupled with the country’s increasing debt profile. It is even more regrettable that those who are saddled with running the country’s economy are still insisting that the nation’s debt is still tolerable.

Meanwhile, central banks across the world have the core mandate to maintain the stability of the internal and external value of their currencies. It is only when they fail in this core mandate, when the public loses confidence and when the banking system and government cannot protect their savings that crises break out.

Pundits opine that the first imperative of the central bank in managing an ailing economy is to restore calm to financial markets. Anxiety and panic create the equivalent of a financial heart attack by cutting off the flow of credit even to healthy institutions. This amplifies the damage in the financial system and is one of the main transmission channels through which panic affects the economy. The alleged concealment of the country’s economic state if adjudged on this basis of preventing market panics is thus tenable.

Read More: CBN Orders Closure of Naira Remittances Ledgers

Another central role is offering extensive liquidity support against good collateral at a penalty rate. This is carried out by ensuring that markets for short-term credit function properly while preventing the collapse of financial institutions caused by liquidity restrictions.

In addition, when necessary, central banks use flexibility as an additional tool in managing an ailing economy. They may relax their collateral requirements and lend against a wider variety of instruments. They may also arrange cross-currency swaps with foreign central banks to provide liquidity denominated in foreign currency.

Non-conventional measures are equally viable options. One of such measures is making an explicit commitment to keep the policy rate at a low level for an extended period of time, thus reducing uncertainty and potentially reducing interest rates at greater maturities.

However, economic experts state that there is a trade-off between responding aggressively and responding conservatively. Responding aggressively, on the one hand, has a greater likelihood of preventing the crises but may cause instability and distortions in financial markets as a consequence of excessive intervention. It is also likely to garner considerable political ill-will.

Responding conservatively on the other hand is less controversial, but it may provoke a total financial breakdown eventually. What matters most is the deft balancing of any response to ensure that nothing rocks the boat as the economy sails steadily to stable waters.