3 years ago
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LCCI expresses worry over neglect of solid mineral sector
•More analysts raise alarm over deteriorating public finance
By Babajide Komolafe, Yinka Kolawole & Nkiruka Nnorom
ECONOMY
There appears to be more controversies surrounding the alleged borrowing by the Federal Government to argument the March 2021 statutory allocations as the Lagos Chamber of Commerce and Industry, LCCI, and economic analysts indicated that the situation is even worse and could lead to further depreciation of the naira as well as send negative signals to the citizens on the state of government finance.
The Governor of Edo State, Godwin Obaseki, had told a stakeholders meeting last Thursday in Benin City that the FG printed about N60 billion to top up the amount meant for distribution to the three tiers of government as inflow from the Federation Accounts Allocation Committee, FAAC.
Responding to Vanguard on the development, the Director General, LCCI, Dr. Muda Yusuf, said, “The situation is even worse than the picture he painted. CBN financing of government deficit has reached unprecedented levels in recent years. In 2020, it was in excess of two trillion naira. In monetary parlance, it is referred to as Ways and Means financing by the CBN.
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“These are reflections of the weak revenue performance of government in the face of growing expenditure. The situation clearly poses serious macroeconomic risks, some of which has started to crystallize.
“The biggest of such risks are the inflation and currency depreciation risks. It is a contributory factor to the current uptick in inflationary pressures in the economy.”
Headline Inflation was 17.33 percent as at February, the highest in recent times. Food inflation was even much higher at over 21 percent.
Yusuf stated further: “There are also implications for the currency. Mounting ways and means financing increases money supply and invariably weakens and depreciates the currency.
“All of these are taking a huge toll on production costs, operating costs and the welfare of citizens.”
Also commenting, Dr Adebayo Adedokun, Trade, Finance and Development expert, Department of Economics, University of Lagos said: “If what the governor said is true, it will increase monetary base or Money Supply in the economy void of increase in economic activities, The effect of which will be inflationary.
“This will also lead to money illusion, where our Gross Domestic Product, GDP, may seemingly increase but in real terms, the value may be lower than what it was before the sudden rise in currency component of money supply.
“If it is not properly managed, Nigeria may be going the way of Zimbabwe or Venezuela, when you may need a large quantum of naira to exchange for convertible currencies such as dollar, Euro whose supply have been adversely affected by low sales of crude oil during the COVID era.”
Ayodeji Ebo, Head, Retail Investment, Chapel Hill Denham, in his reaction, said: “If the statement is true, then this is worrisome as the states continue to receive “easy money”. This will not allow state governments look inwards to create avenues to increase their internally generated revenue.
“Beyond the inflationary impact, it also sends negative signals to the citizenry due to the high cost of governance. I hope this trend is not sustained as the federal government is just trying to securitize the Ways & Means” funding option.”
David Adonri, Managing Director/Chief Executive Officer, Highcap Securities, described it as an irresponsible and destructive way of financing the government, saying that it does not reflect the productive capacity of the nation.
He stated that the income generating capacity of the federal government collapsed, hence the resort to printing of money to finance FAAC allocation.
He said: “It is an irresponsible and destructive way of financing government. It creates money that is not reflective of the productive capacity of the economy. The excessive money created through “Ways and Means” fuels inflation. “That FGN has found it expedient to resort to this method means the income generating capacity of government has collapsed.”
