PUNCH NEWSPAPER wrote; Parable ☀̤̈f the fool and his money The other day, a friend narrated a story, which I found stranger than fiction. The story related to the travails of a family who lost a successful and illustrious breadwinner, who, unfortunately, died without a Will. The elders of the family were consequently entrusted with the responsibility of efficiently managing the estate of the deceased. In spite of the huge credit balances, lucrative estates and other profitable income generating businesses, the Elders’ Council decided to consolidate the incomes from these investments as savings for future generations! Consequently, rather than spend from the robust income streams available, the Elders’ Council, in its wisdom, gleefully funded its expenditures by borrowing at over 15 per cent interest rate from its bankers, while its savings earned paltry yields, often below five per cent! Predictably, the oppressive interest charges rapidly gulped up the erstwhile flourishing income streams until the mortgaged estates were systematically acquired by banks as repayment for mounting debts. Within a few years, the once prosperous business became bankrupt and the family was reduced to penury. I wondered aloud to my friend, whether this story related to a family of stark illiterates, but I was surprised when he confirmed that the elders’ council comprised reputed professionals, who were educated in some of the best universities in the world! “What then became the fate of members of the Elders’ Council?”, I finally asked my friend; “Oh”, he replied, “they are all doing very well; in fact, they all became major shareholders in the same bank in which the family had its account”! When my friend took his leave, I quietly wondered if this story could ever be true; however, later that evening, it became clear that as outrageous as it may seem, in reality, the story of this tragic family appears congruent with the story of our country, Nigeria! Nigeria is, undoubtedly, blessed abundantly with resources; for example, crude oil revenue alone often exceeds projected annual spending. Curiously, in spite of such fortuitous revenue base and our favourable balance of payments, we have inexplicably found ourselves rapidly, needlessly compounding our debt burden in recent times. Annually, the managers of our economy deliberately understate projected revenue with very conservative benchmarks for crude oil price and output. The government subsequently proceeds to finance anticipated “ghost” deficits by borrowing at oppressive rates often above 15 per cent, while simultaneously, paradoxically consolidating revenue “surpluses” in savings accounts with yields well below five percent, particularly for its dollar or euro-denominated deposits! It appears to be of no consequence that the same banks that keep our incomes and deposits for little or no yield are predominantly the same sources, which fund government’s borrowings. Pray, why borrow back your own money with excruciating costs? These banks, which currently post hundreds of billions of naira profits, are also beneficiaries of the over N5tn AMCON funding in the last three years; notwithstanding, the expected revitalisation of the real sector with bank support has remained elusive, while AMCON’s trading loss could be well over N2.5tn by the end of 2012! In spite of huge borrowings to fund ghost deficits in budgets, “surplus” revenue is regularly hounded into a so-called Excess Crude Account or alternatively consolidated in a savings account designated as a Sovereign Wealth Fund. The yield from either account is probably below three per cent. Incidentally, the constitution does not recognise either of these accounts, which are definitely discordant with true federalism! Instructively, the funds consolidated in both accounts may ultimately become inadequate for the liquidation of the rising debts, which were avoidable in the first place, as availability of surplus revenue is indicative that our gross income exceeded expenditure. It is bewildering that our respectable Economic Management Team, would sustain deficit financing and increase our domestic debt burden almost at hundred per cent in the last three years despite existing surplus revenue accounts! So, as it is with the misguided recklessness of the elders’ council in our earlier story, so it is with the mismanagement of the Nigerian economy. In spite of our fortuitous resource endowments actually generating more income than projected in annual budgets, the government remains committed to a strategy of borrowing at excruciating rates of interest to fund ghost deficits, instigated by deliberate understatement of projected revenues annually. It is no wonder, therefore, that despite increases in our ‘surplus’ savings, there is deepening poverty and very little on the ground nationwide to show for our simultaneously bourgeoning debt profile. Meanwhile, the Economic Management Team grabs every opportunity to extol the wisdom of a fiscal strategy, which is taking us nowhere fast! Nevertheless, fortunately, all is not lost, as the National Assembly still constitutes a superior authority over the economic team. Indeed, in May 2008, in an article titled, National Assembly fiddles as debt burden cripples, (lesleba/260508.doc), this writer cautioned the parliament to stop the frenzied debt accumulation by the Debt Management Office and the CBN. Regrettably, the National Assembly remained unperturbed! “However, now that the cancerous impact of reckless debt accumulation has become very glaring, the current federal legislature would have failed our nation woefully if it doesn’t immediately suspend all government borrowings. It is imperative that we first determine the reasons for accumulating such an oppressive, yet avoidable debt burden. Our economic security and that of future generations will be foolishly compromised, if the current socially destructive business model is sustained!” The above is an excerpt from an earlier article published in December 2012! Anyone who doubted the credibility of the riches-to-rags story of the rich man’s family should now take a second look at how the travails of the family is loyally mirrored by the reckless management of our economy by our distinguished and acclaimed Economic Management Team. Recently, none other than Sanusi, belatedly conceded, as regularly canvassed by this writer for over a decade, that it does not make sense to continue to fund the cash base of banks with government’s free deposits, only for the CBN to return to the same banks to borrow back funds at between 13 and 14 per cent interest rates, just to simply sterilise (or keep idle) such funds from use! In realisation of this oppressive anomaly, the CBN, in July 2013, directed that only 50 per cent of government deposits in banks should count as part of the 12 per cent Cash Reserve Ratio of banks. Not surprisingly, despite this directive, the burden of surplus cash remains problematic, as the CBN and the DMO have since cumulatively borrowed well over N300bn from these banks just to reduce cash supply in the economy! Undoubtedly, a self-serving Elders’ Council is still in charge!
Posted on: Mon, 23 Sep 2013 05:29:19 +0000
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