By Odunewu Segun
For a while now, economists and finance types who follow the Central Bank of Nigeria (CBN) have been sounding a low intensity alarm about the CBN’s direct funding of the Nigerian government.
The alarm bell was sounded by Dr. Doyin Salami, a well-regarded member of the MPC, who last month said the CBN was providing a ‘piggy-bank service to the federal government.
He quoted statistics that showed much of the rise in the CBN’s financing of the federal government have come since last December with its purchases of government bonds being the worst culprit with a 20-fold rise in 2017 alone.
However, in an interview with National Daily, an economist and management consultant, Osilama Okuofu, took a different perspective on the issue. He said the spending may be contractionary from the monetary angle, but will definitely be expansionary on the fiscal leg in the long run if the funds are used to develop infrastructures.
Okuofu supported the view put forward by CBN governor, Godwin Emefiele, that the apex bank was only playing its role as banker to the government.
Recall that Emefiele had last week said that the central bank has not over-funded Nigeria’s government. “The government had, on its own, decided that all its funds in banks, both local and foreign currencies, should be moved into the TSA at the CBN,” he said.
“If a customer of a bank has fixed deposits in an account and needs some spontaneous financing to meet his obligations, his commercial bank can allow him overdraw his account temporarily. That is what is happening.” Emefiele had said.
Okuofu said people should not forget the fact that the CBN is the banker to the federal government, and could indeed lend money to the government if the need ever arises.
“I don’t see anything wrong in CBN financing government spending. In the first place for the CBN to do that it means there is a shortfall, a funding gap that needed to be bridged.”
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“If the funds advanced by the CBN are for capital project like roads, schools, hospitals and things like that, it will be good for the economy in the long run. But if it is for the payment of things like salaries, then there be will need for serious concern.”
He said some experts may see the spending as being contractionary, but in the long it is going to be expansionary, especially if the money is used to develop and put in place infrastructures.
According to Okuofu, this is the more reason why the fiscal and monetary arms must work efficiently together to make the economy more vibrant.
Statistics have shown that between December 2013 and April 2017 for instance, the CBN’s “claims on the federal government” went from 678 billion naira to 6.5 trillion naira ($1.8 billion to $17.3 billion)—an almost 10-fold rise. These “claims” are made up of overdrafts, treasury bills, converted bonds and other such lending.