‘Money illusion’ and Tinubu’s challenge to governors – Part 2 | The Guardian Nigeria News

At just about all ranges, many developmental initiatives have turned ‘white elephant initiatives’ or completely deserted because of the crashing buying energy of annual budgetary provisions year-in-year-out. Authorities officers merely transfer round bandying the humongous sums in billions and trillions which were ‘spent’ on numerous initiatives.

Though there are a number of different components that contribute to the abandonment of initiatives, the quick crashing actual worth of budgetary allocations stays vital. The hyperinflationary pattern in Nigeria, triggered by gasoline subsidy removing, and the total floatation of the naira which led to its sudden large devaluation have mixed to make initiatives planning and execution traumatic.

Distorted price range cycle, now entrenched by the Tinubu administration, has come to worsen the uncertainty created by ‘cash phantasm.’ Relatively than having the annual price range run from January to December, the cycle has now additionally turned unpredictable underneath the present administration. This has resulted into a number of opinions of initiatives (with contract sums rising), and rolling them over by means of many (annual) budgets. And most of the initiatives are ultimately deserted!

Past propaganda, nonetheless, does the Authorities actually have a lot cash for its programmes and actions? If the Authorities has a lot cash (because the trillions of naira reveals), why is it going cap in hand, borrowing cash from all over the place throughout the globe? Why is the Authorities imposing all method of taxes, duties and levies on (largely hitherto free) public items, companies and utilities?

Because the buying energy of the citizenry is quick crashing, courtesy of rising inflation, Authorities straight or by means of its companies retains mountaineering present tax charges or imposing new ones. As an illustration, within the contentious tax invoice earlier than the Nationwide Meeting, the Worth Added Tax (VAT) charge is being raised from 7.5 per cent to 10 per cent. Being a consumption tax, hike in VAT charge robotically interprets to ‘milking’ the patron the extra.‘Cash phantasm’ has, in a manner, led the CBN to construe the ravaging hyperinflationary pattern within the nation as a financial phenomenon, the place ‘an excessive amount of cash is chasing few items’. But, the runaway inflation is extra of a ‘value push’ drawback, due to the rising value of all productive actions—together with ‘imported elements’ of such prices.

The apex financial institution believed there was an extra of cash in circulation, resulting in elevated demand for a ‘restricted’ provide of products and companies. With this as a background, the CBN has been taking a decent financial stance, together with elevating the Financial Coverage Fee (MPR) to highest stage lately: from 18 per cent in June 2023 to 27.50 per cent at end-2024. An nearly 10 per cent hike in 18 months.

The CBN additionally raised the Money Reserve Ratio (CRR) to ‘drain’ money from the business banks, and weaken their credit score creation capability. However this, plus the excessive MPR, raised the price of credit score to non-public sector operators—and certainly, pushed loans past the attain of most companies—particularly the Small and Medium-sized Enterprises (SMEs).

Apparently ensconced within the so-much-money backdrop, the CBN has been issuing bonds and Treasury Payments at mouthwatering charges—attracting each native and international portfolio traders (FPIs)—all to the detriment of the actual sector within the nation. The FPIs, as ‘sizzling cash’ have been flying in and in a foreign country at indeterminate paces, and sustaining the macroeconomic volatility.

Other than the CBN, nearly with out exception, all different Federal Authorities companies have continued to impose or hike expenses for his or her companies to the populace. And they’re being celebrated for the trillions of naira they’re raking in for the Authorities. Nigeria Customized Service (NCS), Nigeria Immigration Service (NIS), Nigerian Ports Authority (NPA), amongst others, have been exceeding their ‘income targets’—leaving the citizenry poorer.

These enormous (sudden) revenues from these companies, as defined by President Tinubu, have been what moved him to return to the Nationwide Meeting for a top-up to the 2025 Appropriation Invoice, because it was present process legislative consideration. This uncommon step reveals that Mr. President believes that the larger the cash budgeted, the extra ‘profitable’ the price range could be. And we ask: the place are the impacts of the earlier budgets?

By the identical deduction, the so-called ‘more cash’ within the arms of the state governors doesn’t quantity to a lot in actual phrases. So, slightly than flaunting the ‘fats’ FAAC month-to-month allocations, the Federal Authorities ought to start to handle the foundation causes of the crashing buying energy. Why has inflation been rising, and remained excessive even after the rebasing of the Client Value Index (CPI)?

After rebasing, the CPI—which measures inflation charge—was introduced down from end-2024 stage of 34.80 per cent to 24.48 per cent in January 2025. The rebasing which amounted to a mere change within the methodology utilized by the Nationwide Bureau of Statistics (NBS), led to the ‘drop’ within the CPI worth.

It can due to this fact, be one other kind of phantasm for the Federal Authorities to start to have fun the so-called drop in inflation charge. In any case, the 24.48 per cent for January 2025 is much above the sub-Saharan Africa common of 5 per cent (‘Africa Pulse’ report) in 2024. And, within the superior economies (UK and U.S., as an example), inflation charge is hardly above three per cent.

In coping with the ‘cash phantasm’ problem, due to this fact, the ball is squarely within the courtroom of the Federal Authorities. It’s because no matter is the state of the Nigerian financial system at this time is essentially policy-induced: primarily unintended upshots. So, let’s start to get actual!

Concluded.

Okeke, a training economist, enterprise strategist, sustainability knowledgeable and ex-Chief Economist of Zenith Financial institution Plc, Lekki, Lagos. He may be reached by way of: [email protected] or (08033075697) SMS solely.