A huge row appears to be brewing between the federal government and Governor Godwin Obaseki of Edo State following the governor’s claim that Abuja printed N60 billion to supplement the federal allocation to the three tiers of government for March.
A top official of the Federal Ministry of Finance and another official of the Central Bank of Nigeria (CBN) said last night that they did not understand what the governor was talking about.
The result would be hyperinflation, they said.
Speaking at the Benin meeting, Obaseki said: “Nigeria has changed. The economy of Nigeria is not the same again whether we like it or not. Since the civil war, we have been managing, saying money is not our problem as long as we are pumping crude oil every day.
“So we have run a very strange economy and strange presidential system where the local, state and federal governments, at the end of the month, go and earn salaries. We are the only country in the world that does that.
“Everywhere else, the government relies on the people to produce taxes and that is what they use to run the local government, state and the federation.
“But with the way we run Nigeria, the country can go to sleep. At the end of the month, we just go to Abuja, collect money and we come back to spend. We are in trouble, huge financial trouble.
“The current price of crude oil is only a mirage. The major oil companies who are the ones producing are no longer investing much in oil. Shell is pulling out of Nigeria and Chevron is now one of the world’s largest investors in alternative fuel, so in another year or so, where will we find this money that we go to share in Abuja?
”When we got FAAC for March, the federal government printed an additional N50-N60 billion to top-up for us to share.
Contacted last night, an official of the Federal Ministry of Finance and two officials of the Central Bank of Nigeria (CBN) appeared surprised at the governor’s claim.
One of the CBN officials asked: “when did central banking translate to political authority?”
The Federal Ministry of Finance official said the media should ask Obaseki to shed light on his claims.
“The media should interrogate him (Godwin Obaseki) more and not the Minister of Finance,” he said.
Printing N60b for the economy is dangerous: ex-President, CIBN, former bank director
An economist and former President, Chartered Institute of Bankers of Nigeria CIBN), Okechukwu Unegbu, said it would not be in the best interest of Nigeria if the federal government truly printed N60billion for the March FAAC sharing.
He said any such decision was dangerous for the economy.
He said it was better for the economy to be in deficit borrowing than for the economic managers to print money not backed by production.
“Public finance is my area of specialisation and I know the dangers of printing money that is not backed by production. It means the country is broke and the governor is raising the alarm,” he said.
According to Unegbu, money should be backed by what is produced; foreign reserves, otherwise it gives room for hyperinflation.
His view is shared by a former Executive Director, Keystone Bank, Richard Obire.
Although Obire admitted that Central Banks around the world do print money not backed by production when the economy is challenged; he explained that issues like quantitative easing and stimulus packages simply means printing and sharing money but no one comes out to say how much has been printed.
He said the disclosure by the governor is big news for foreign investors and could affect investment decisions into the economy.
Obire said such action means that Nigeria is not earning enough funds through tax, and other income to fund the activities of the state.
A text message sent to the Central Bank of Nigeria (CBN) Director, Corporate Communications, Osita Nwanisobi, on the matter was not replied.
When printing of money becomes a problem, by Ekpo
A professor of Economics and Public Policy at the University of Uyo, Akwa Ibom State, Prof. Akpan Hogan Ekpo, said there is nothing new about the CBN printing money if it becomes inevitable.
But such funds must be put into non-productive use, he said.
His words: “Central banks all over the world print money when there is a need for it. It is only if you don’t manage the huge amount of money in circulation that it becomes a problem.
”If it (printed notes) is not well managed, it will lead to a situation where too much money is chasing few goods and that could lead to inflation naturally and inflation hurts the poor harder than the rich.
“The first thing however, is to avoid printing money if possible. But if it becomes inevitable, it should be done efficiently in terms of being able to manage such funds.
Echoing similar sentiments, Dr. Austin Nweze, a political economist at the Lagos Business School, said it was scandalous to print money for the purpose of spending at home as that would stifle the economy in the long run.
He said: “What the federal government is doing is inflation targeting that will lead to so much money in circulation since you have not created jobs.
“It doesn’t make any economic sense to print money and still allow such money to be in circulation because it has huge implications for the economy.
‘What Governor Godwin Obaseki said is cause for worry’
“What the federal government has done is that the country is broke and its economic management style is not dependable. I should have expected the government to take a cue from the Rwanda President, Paul Kagame, who had to resort to printing Rwanda local currency to pay up its foreign debts.
“That way the money is not in circulation and cannot lead to inflation.
“However, the experience in Nigeria shows that the money being printed is not productive money but free money to be spent and that is indeed a sad thing.”