The former Central Bank of Nigeria (CBN) Governor, Prof. Charles Soludo yesterday came down hard on key economic policies of the Federal Government, saying their implementation won’t take the economy to its destination.
He says the Treasury Single Account (TSA), the CBN’s foreign exchange (forex) policy, and bailout funds for state governments are all in bad taste. He also believes that the removal of fuel subsidy should be done immediately and that capital controls policy of the apex bank is chasing away investors.
The ex-CBN boss who spoke on the theme: ‘It’s the Nigerian Economy, Stupid” at the third anniversary lecture of Realnews held in Lagos, said the CBN’s forex policies are not in the best interest of the economy, arguing that fixed exchange rate is a disincentive to investors.
Soludo says the politics of naira devaluation and CBN’s promotion of fixed exchange rate is not good for the economy. He said Nigeria is currently facing trade shock.
“The economy has always done worse in fixed exchange rate regime. Capital will fly out. Such policies do more harm than good. Capital flight in a country that is in dire need of capital is bad. Private capital is on the run,” Soludo said.
He believes forex restrictions on the import of 41 items by the apex bank is a mismatch and is causing the economy to go down.
“What is going on in the capital market is not an accident. Small and Medium Enterprises (SMEs) suffer the most. You must have an exchange rate regime that overvalues or undervalues the local currency. No economy has succeeded with overvalued exchange rate”.
Soludo said: “In my five years at the CBN, we maintained undervalued real effective exchange rate. Delayed adjustment of the naira value is dangerous because investors don’t wait”.
He said the forex policy of the CBN has triggered massive lobbying for the greenback. “Lobbying for forex is the new trend now. Why must people get forex to pay for school fees, medical bills and mortgages abroad. Such expenses cost the economy billions of dollars and are creating briefcase millionaires. It is creating instant millionaires,” he said.
He also condemned capital control policy of the CBN, saying it does nothing good to the reserves. “CBN thinks capital control saves reserves. But that is not true. Capital flow works on reverse psychology. If you make it so difficult for investors to take out their money, it will be difficult for them to invest,” he said.
He said the philosophy that condemns importation of goods that can be produced locally is not right, saying such position will reduce trade among nations.
He challenged the CBN to explain why it pegged the naira at N197 to a dollar, saying it was wrong to arbitrary pick numbers. “The policy will continue to make a bad situation worse. The forex policy will complicate issues,” he said.
Soludo called on the government to quickly remove fuel subsidy before it is too late. “If government does not deal with fuel subsidy removal now, I don’t know when he can do that. It is a waste that should be checked. Government should come up with credible agenda on fuel subsidy. It should have been done yesterday,” he said.
He faulted the implementation of the Treasury Single Account (TSA), saying it does not add positive value to an economy that is in urgent need for re-fueling. For him, TSA is not sound economics.
He advised that government adopt a hub and spoke strategy, where the CBN acts as the hub and banks act as spoke in galvanizing to the economy.
However, he admitted that the CBN cannot do much without the collaboration of the Presidency. “The market will react if investors find out that the Presidency controls the CBN. There should be independence of the CBN,” he said.
Speaking further, he said CBN’s bailout fund to states was a mistake that should not be repeated arguing that the Fiscal Responsibility Act should be implemented to fully. Soludo said a sitting governor can decide to bankrupt his successor and will be applauded at the moment. It is the next government that feels the pain of the bailout fund. “We must watch the balance sheet of the CB and banks very carefully,” he said.
The former CBN boss said the proposed N5, 000 welfare package for the unemployed is a good idea, but not for this time. He explained that although promises have been made, the welfare payment cannot be sustained, unless government wants to overtax the private sector. “Corporate taxes should go down. This is not a good time to raise taxes,” he said.
He said the People’s Democratic Party (PDP) government bequeathed on the nation, a failed state and was consistently living in denial.
Soludo said said he supported President Mohammadu Buhari over former President Goodluck Jonathan because he was convinced the previous economic team was bankrupting the economy.
He believes President Buhari seriously desired the job and worked very hard to get it. He said the All Progressives Congress (APC) government is hungry to deliver dividends of democracy to the people. On People’s Democratic Party (PDP), the former CBN boss said the party had grown and was taking power for granted.
“I strongly support the new cabinet. His team believes in the vision and mission of the party and is likely to give no excuses. The Vice President should be the co-ordinating minister for the economy even as I strongly believe that President Buhari wants to rebuild institutions. The question is: Can a new Buharinomics save Nigeria? he asked.
He said the fundamental challenge of APC is that it is standing on a stronger base than PDP 16 years ago.
He however applauded PDP for some of its achievements in the last 16 years. “Under PDP, the size of the Gross Domestic Product (GDP) doubled within 12 years, with the economy growing at over six per cent per annum to $550 billion.
Soludo said the GDP handed over to the APC should be doubled to in the next eight years as such would help to reduce poverty.
He said the last PDP government left only $30 billion in foreign reserves, instead of estimated $100 billion based on the level of revenues that accrued to government coffers in the last five years of the administration. He said the current government must succeed and that failure is not an option.
