Reserves and continued profligacy

Minister of Finance, Dr. Ngozi Okonjo-Iweala
| credits: File copy

WITH the drop in Nigeria’s foreign reserves by 23 per cent in the year up to May 27, the mystery of dwindling state revenues is becoming murkier. No one outside the ruling circle understands how Nigeria, alone among the major oil producing countries, manages to be cash-strapped while production levels and crude oil prices remain high. Global trends, however, demand that the government should end its profligate ways and manage the economy with prudence.

Sadly, prudence is one virtue the Goodluck Jonathan administration has never demonstrated in its five years in office. Significantly too, its economic czarina, Ngozi Okonjo-Iweala, who has repeatedly alerted the public to the grave danger posed by dwindling foreign reserves and other buffers, has failed to bring her vaunted knowledge and influence to bear on the wasteful government she serves.

The latest data from the Central Bank of Nigeria shows that reserves fell by $11.3 billion or 23.3 per cent from $48.4 billion in May 2013 to $37.1 billion on May 27 this year. The steady decline since 2008 had continued when it fell by 2.62 per cent from April when it was $38.14 billion, to $37.1 billion in May. Between January and April this year, reserves fell by $4.72 billion. Financial analysts around the world are scratching their heads, wondering where our oil revenues have gone despite consistent high prices − averaging $100 and above per barrel. Oil production has hovered at 1.8-2.3 million barrels per day despite theft and sabotage of production facilities.

An explanation by the CBN that the decrease is driven “largely by increased funding of the foreign exchange market” does not account fully for the huge hole. It certainly did not satisfy the former CBN Governor, Lamido Sanusi, who was persuaded that discrepancies in crude oil sales volumes and matching revenues signposted unexplained leakages and was promptly suspended from office for saying so.

There has been an obvious failure of fiscal and monetary policies to stabilise the exchange rate through normal market mechanisms. Illegal diversion of funds by government officials and the unauthorised draw-downs from reserves and other fiscal buffers are also prime suspects. That the CBN had to use $6.4 billion to defend the naira in the first two months of this year is evidence of incompetence by the government, especially its failure to reduce import dependency and raise non-oil export revenues. About $26.6 billion had been spent to maintain forex stability in 2013. A significant percentage of the forex is spent on importing goods like food, raw materials, textiles, cosmetics, furniture and cheap household items which, but for terribly inept economic management, the country has abundant capacity to produce for local consumption and for export.

Add the depletion of reserves to the near wipe-out of the Excess Crude Account − a buffer created for the rainy day and which reached $23 billion in 2007 − the plunder of special funds and the habit of many statutory agencies, most notoriously the Nigerian National Petroleum Corporation, of withholding funds and one gets the picture of a dysfunctional, corrupt and unfocused system. While funds vanish, infrastructure is decrepit; over 60 per cent of the population are poor, health, education, water supply facilities are miserably inadequate and the country is in the lower rung of humanity in human development indices.

The government is driving the country towards ruin. Okonjo-Iweala acknowledged in January that Nigeria is at “great risk,” having degraded reserves and even the ECA from $8.65 billion in December 2012 to $2.5 billion by January this year, a warning strongly echoed by the CBN’s Monetary Policy Committee. Nigerians, as world leaders like Hillary Clinton and commentators around the world are now canvassing, should demand accountability from their government. How does this government explain its continued borrowing even while it squanders every available fund? According to the Debt Management Office, the federal and state governments’ external debts stood at $9.16 billion by March 31, while domestic debts were about N10.16 trillion.

As we are continually warned, any sudden or sustained drop in oil prices will put the economy in grave jeopardy. We should diversify our export base, invest heavily in infrastructure and restructure the economy for production and away from rent-taking and single-product dependency. Our fiscal management is disgraceful. While other major oil producing nations are stacking up reserves and savings and deploying oil wealth into infrastructure, our own government is presiding over the disappearance of both, with nothing to show. Saudi Arabia had $733 .66 billion in reserves by March; Algeria $192.5 billion (December); strife-torn polities like Libya, $120.29 billion, and Iraq, $71.24 billion, and up-and-coming Angola, $37.94 billion. While our ECA has been repeatedly raided by wasteful federal and state governments and the Sovereign Wealth Fund is a paltry $1.5 billion, Qatar’s SWF is $170 billion, Kuwait’s $410 billion, Algeria’s $77.2 billion and Iran’s $58.6 billion.

The Federal Government should change its wayward ways, cut waste, genuinely tackle corruption and adopt sensible economic policies. Our economy is fragile and structurally deficient; there should be responsibility and prudence in managing reserves, savings and special funds. The National Assembly should go beyond sensational disclosures and exercise stringent oversight over public funds in line with its constitutional powers.