By Isaac Asabor
It is not an exaggeration to say that in as much as not every Nigerian is an economist that those who studied Ordinary level economics are not bereft of the knowledge that the total stock of money circulating in an economy is the money supply, while the circulating money cut across the currency, printed notes, money in the deposit accounts and in the form of other liquid assets. With the “ordinary knowledge” in economics, it was not in any way a surprise when not few Nigerians reacted in flurry to the hornet’s nest that was unarguably stirred by the governor of Edo State, Mr. Godwin Obaseki, when he claimed the Central Bank Of Nigeria (CBN) printed and shared money to States as “unfortunate and totally inappropriate”.
Unexpectedly, on the trail of the governor’s claim were reaction from the Minister of Finance, Budget and National Planning, Zainab Ahmed, who dismissed the comment, insisting that the FAAC allocation was revenue sourced from different agencies of the government. In a similar vein, the governor of CBN, Godwin Emefiele, has dismissed the claim by Governor Obaseki, that the apex bank printed and shared money to states as “unfortunate and totally inappropriate”. While defending the position of the bank, Mr. Emefiele said printing money is a key mandate of the CBN, and that the bank must always act to support the government in times of financial difficulties.
Be that as it may, economic experts and watchers of the economy alike have since the day the opposing views began to trend been unanimous in their suggestions that neither Obaseki nor Emefiele is wrong in the respective position taken by them. Rather, they submitted that the state of the economy is not ripe for such economic strategy, particularly in the face of rising inflationary rate which Nigeria is experiencing, and coupled with the fact that Zimbabwe has in years past applied the same measure, and unfortunately got enmeshed in unprecedented messy economic difficulties.
To those that are opposed to printing of currency into circulation by the CBN, the first economic onslaught that ruined Zimbabwean economy was unleased forty-years ago when Robert Mugabe inherited a well-diversified economy with potential to become one of sub-Saharan Africa’s best performers. But alas! Contrary to expectations, Zimbabwe is today dubbed as East African region’s basket case, with real per capita incomes down 15 per cent since 1980.
Not few analysts were unanimous in their views that the country’s economy is in very bad shape. At a point in Zimbabwean economy, the economic crisis faced both by the people and the country was so bad that when a Saver needed to withdraw money, say N10, 000 from Nigeria’s monetary context, he or she is given pittance like N200 a day by the bank. The media space is agog with how severe the liquidity crunch was.
As gathered, in 2008, Zimbabwe had the second highest incidence of hyperinflation on record. The estimated inflation rate for Nov 2008 was 79,600,000,000%
That is effectively a daily inflation rate of 98.0. Roughly every day, prices would double. It was also a time of real hardship and poverty, with an unemployment rate of close to 80% and a virtual breakdown in normal economic activity. The hyper-inflation was caused by printing money in response to a series of economic shocks. Ostensibly looking back into monetary history to ascertain whether such economic mess has ever occurred in any part of the globe, it was gathered that the highest hyperinflation rate was Hungary in 1946 with a daily inflation rate of 195%.
At this juncture, it is not anomalistic to ask what actually caused the hyper-inflation that Zimbabwe has been battling with till today. The foregoing enquiry cannot be farfetched as government resorted to printing money in response to high national debt, decline in economic output, decline in export earnings, price controls which exacerbate shortages, and lack of confidence in government, economy and political life just as been mildly experienced in Nigeria at the moment. Against the foregoing backdrop, it is expedient to ask if Nigerians would be favorably disposed to pass through the harrowing economic hardships which Zimbabweans passed through, and still passing through.
According to African Development Bank Group, Zimbabwe Economic Outlook is far from getting better as recent macroeconomic and financial developments of the country is not in any way laudable.
“Before the COVID–19 pandemic, Zimbabwe’s economy was already in recession, contracting by 6.0% in 2019. Output fell because of economic instability and the removal of subsidies on maize meal, fuel, and electricity prices; suppressed foreign exchange earnings; and excessive money creation. The onset of the COVID–19 pandemic and continued drought led to 10% contraction in real GDP in 2020. Inflation soared, averaging 622.8% in 2020, up from 226.9% in 2019. Foreign exchange reforms were instituted in June 2020, which dampened an inflation that raged an annual rate of 838% in July. Fiscal and current account deficits also recovered after July, but both deteriorated for the year as a whole.
“The budget deficit rose from 2.7% in 2019 to 2.9% in 2020, while the current account went from a surplus of 1.1% of GDP in 2019 to a deficit of 1.9% in 2020. The exchange rate depreciated ZWL2.5 in February 2019 and stabilizing around ZWL82 to the US dollar in December 2020. Poverty stood at 70.5% in 2019 while unemployment remained high at over 21%. The banking system is stable. Banks have some room to increase credit. The loan-to-deposit ratio was 38.8% in 2020 against a benchmark of 70%. Non-performing loans are at 3.23%, well under the regulatory benchmark of 5%. The capital adequacy ratio is more than three times the regulatory requirement of 12%.”
According to experts, across the world, governments have two basic choices for financing their deficits: they can borrow (issue debt) or raise taxes. And with economists estimating that the coronavirus recession will cost the world’s governments more than $11 trillion, governments are looking towards a third option, which is the unconventional ‘ways and means’ of printing money.
However, despite the confidence the apex bank’s governor exuded in his reaction to Obaseki’s claim, economists and financial experts have warned that Nigeria faces the risk of falling off the fiscal cliff if the Federal Government continues to rely on ‘Ways and Means’ to fund its widening deficits. The experts said Obaseki’s revelation reflects the sad reality of the economy and that the future appears increasingly bleak except the trend is reversed.
At this juncture, it is expedient to say that neither Obaseki nor Emefiele is wrong. Against the backdrop of where the economy is today, it is advisable for the federal government to apply extremely careful measures to get Nigeria’s economy out of the woods.