Chukwuma Soludo

Former Central Bank of Nigeria (CBN) Governor Charles Soludo yesteday advised the Federal Government to sustain the ban imposed on 41 items from access to foreign exchange (forex) through the official windows.

He said instead of banning and unbanning the importation of goods, the government should increase tariff and there will be competitive exchange rate.

Prof Soludo, who fielded questions from reporters on the sideline of the eighth Annual Pan-African 1:1 Investor Conference organised by Renaissance Capital at Intercontinental Hotel, Lagos, also said the trillions of naira warehoused with the CBN through the implementation of the Treasury Single Account (TSA) ought to have been used to provide liquidity in the economy that is in “avoidable” recession.

He lamented that the fiscal side of the economy had become broken and dormant, adding that the era of multiple exchange rate must end.

He said: “The first step in that direction, the mechanism is very clear and simple and the very first step in that direction is to eliminate the so- called 41 items that you said are ineligible for forex. You cannot unify the forex market with those kinds of things. Once you begin to discriminate and do all those kind of things for eligible transactions, you have two ways; if you don’t want those things to come in, you use the exchange rate and then you use the commercial and trade policy.

“Raise the tariffs on them but have a competitive exchange rate. If it is expensive for people to import, they would not import them but we have had this regime before, this whole concept of multiple array of this and that which is a huge distortion in the system and we have just one policy today and another tomorrow. Eliminate that and have one single market for all these, and then you have the interbank market, it would work, period.

“It has been done before, it is not rocket science, but the moment you allow these varying windows to arbitrarily determine them pegged and so on, the system will continue to hemorrhage.”

To Soludo, what had happened in the last two months was akin to taking 100 steps backward and now taking 10 or 15 forward. “That’s a good thing to applaud; it’s a good progress but it doesn’t remove the fact that you are still 90 to 85 steps short of where you ought to be; so the first step is to eliminate distortions, unify the market.

“This has implications for what you call fiscal broken public finance. In a regime where you have the total re- current expenditure in excess of your total revenue, you know people talk about recurrent being 70 per cent of the budget, they are including the debt, but as a percentage of your total revenue, your recurrent expenditure is over 100 per cent which means as it is today, part of our borrowing is actually to finance recurrent expenditure.

“I do not know any country, at least in the last 40 years, that has been able to achieve the kind of transformation that we desire in terms of the investment requirement that is needed to jumpstart (this economy). Our recurrent expenditure actually is in far excess of our fiscal revenue..and we are borrowing to consume so to speak. “That’s a fair sign that you see and you also see the borrowing thing, part of the borrowing requirement, the escalating borrowing by the government is also linked to the forex regime because government revenue is also partly dollar-denominated oil earnings.

“What you have is that you get the earnings and convert it into naira for the Federation Account Allocation Committee (FAAC) at may be between the range of 305 to 315; that’s the rate of the interbank, and whereas the general price level has adjusted at the rate of the parallel market rate. Now that gap will continue. And you keep borrowing, because if the exchange rate were to be much more determined, it would not be 305 and the fiscal buffer that you would immediately get can actually close that gap.

“So the huge borrowings that you keep having at all levels of government can be eliminated. The price level has already adjusted because that’s the primary price indicator in the market. The prices that people hear, the exchange rate that people talk about is the parallel market rate. Anybody who says it is irrelevant is not discussing Nigeria as an economy. The official one is like the time when you had the price control regime.

“Even those who had accessed forex at the official rate, when they are fixing their prices, they are fixing their prices in comparison with the imported ones which are taking signals from the parallel market rate. So the general price level has adjusted there. This is redundant. This is just for rent for the arbitrary allocations. So, in other words, you know that there are also implications for the fiscal.”

Prof Soludo lamented that at politics has constrained economic managemnt, adding that the aggregate of Federal Government revenue is between three and five per cent of the gross domestic product (GDP) which is one of the lowest in the world.

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