Nairametrics| Central Bank Governors by nature are slow to speak. The slightest misinterpretation of their words, can send the financial markets into a spin. They apply the same rule when it comes to criticizing or advising their colleagues. Preferring informal channels.
Ex CBN Governor Chukwuma Soludo broke that rule last week at a fiesty Vanguard Economic Discourse held yesterday. He criticized the Economic Recovery and Growth Plan (ERGP) calling it unrealistic and and lacking fiscal federalism. His critique is in every way valid.
Fiscal federalism is concerned with the division of government functions and financial relations among various tiers of government. The plan in no way discusses this. Under fiscal federalism, the state and local governments should receive the lion share of revenue from their resources. The reverse has been the case in Nigeria, with oil producing states getting a mere 13% derivation. The same applies to Value Added Tax (VAT), which is collected from activities that take place in state and local government, but the federal government having a large chunk.
He noted that the present administration, made the bad situation it inherited worse by not focusing on the big picture.
“While trying to tie down the chickens, we were either stopping the cows from coming in or chasing them away. For example, while we are fixating with stopping the import of toothpicks and stopping the petty traders from taking dollars away, we have created havoc that has shut down many factories and with low capacity utilisation as well as ignited massive capital flight with the attendant impoverishment of millions, escalating unemployment and inflation.”
The Central Bank of Nigeria (CBN) may have reduced the difference between black market and official rates, but it has done so at the expense of flexibility in ease of entry and exit. Boosting the reserves has also come at the cost of denying legimiate FX needs access to funds. Foreign investors, have thus decided to stay out of the country. One hopes the government will heed the advice of Soludo, despite being one of “yesterday’s men”