Devalue Naira, Remove Fuel Subsidy~ Sanusi to Buhari

Firstclass newssline gathtered that the Emir of Kano and a former
Central Bank of Nigeria (CBN) Governor, Mallam Muhammad Sanusi II, has
stressed the need for the federal government to completely remove fuel
subsidy.
He also advised the CBN and the Presidency to reconsider their stance
against naira devaluation, saying the country cannot continue to live
"in denial."
The Emir spoke after receiving a Life Time Achievement Award at the
All Africa Business Leaders Award West Africa in Lagos on Thursday
night and monitored on CNBC Africa yesterday.
He said: "Does it make sense at this time for the government to
continue paying petroleum subsidies? It does not! When you are not
earning because oil prices are down, you have to shut down those
expense lines that had been known historically to be the site of
rent-seeking.
"Fuel subsidy has to go, our tax base has to expand, value added tax
(VAT) has to go up. We can't continue having an economy in which we
collect tax from oil, collect tax from telecoms companies, and then
60-70 per cent of the Gross Domestic Product (GDP) does not pay taxes.
This is something that has to be looked at.
"But if we have to go through fiscal consolidation, which in this time
would be pro-cyclical, should we continue with pro-cyclical monetary
policy? These are questions that we need to answer. I know that the
government has announced its position on exchange rate, subsidy and as
you all know, I am a very strong supporter of this administration.
"I would like this administration to succeed. But a friend does not
tell the government what it wants to hear. A friend tells the
government when he feels it is wrong. So, it is wrong to continue with
the fuel subsidy. It is wrong to continue to pretend that you can keep
the naira at a certain level, when the price of oil is falling,
without depleting your reserves. You have to make a choice."
Continuing, the Emir noted that with the naira at about N200 at the
official and about N225 on the Bureau De Change (BDC) segment, "it
does not speak well of us to pretend that the naira is appropriately
valued."
He said the CBN adopted a demand management exchange policy, whereby
it had deprived certain industries of imports.
According to him, those that can afford to import are not able to do
so because they have been excluded from the market.
"We won't know the impact of this, until we look at the GDP growth. At
the same time we have continued with tight monetary policies. I
pursued tight monetary policies. But at that time, we were attracting
portfolio flows and we needed to have a stable exchange rate, we need
to have a healthy balance of payment situation.
"The portfolio flows are gone, inflation is already upon us. So, we do
not need to keep very high interest rate. It is time to loosen
monetary policy because that is the only thing that would mitigate the
pro-cyclical stance of finance. We need to lower interest rate;
otherwise we compound an exchange rate crisis for business, with high
borrowing cost and declining demand.
"If we continue along this trajectory, with the weak balance sheet of
government and a tight monetary policy, in the face of falling oil
prices, we are setting the economy up for a long period of very low
growth and we cannot afford that given our population and given our
growth rate.
Sanusi also advised the men and women appointed to serve as ministers
under President Muhammadu Buhari to always have the courage to advise
the president whenever they feel he is not doing the right thing.
He appealed to the incoming ministers not to always engage on
insincere flattery of the president, even as he described the set of
ministers that worked under late president Umaru Musa Yar'Adua as well
as former president Goodluck Jonathan as "courtiers."
"I do hope this cabinet would not repeat the mistakes of the previous
cabinet. Under late president Yara'dua and Jonathan, ministers were
like courtiers. I do hope this current breed of ministers would not be
courtiers. I do hope people would have the courage to know that
loyalty is about telling your boss the truth.
"I do hope people would remember that ultimately, if you are part of
an administration and you do not speak when you should speak, then you
have forever forfeited your right to speak.
"The president needs help on the economy and it is extremely important
to understand that even if you have security, even if you fight
corruption, you still need to have jobs, power, you still need to
build agriculture, attract investments and that cannot be done if we
continue dismissing the view of investors and foreigners who want to
bring money into this country," he said.
Speaking further, the former CBN boss opined that the recent
restriction of forex to 41 sectors by the banking sector regulator was
hurting the economy. He argued that the only way the naira would be
strong was for the central bank "to pump more dollars into the
system."
He explained: "We have no option than to block leakages and stop
non-priority expenditure. It is for this reason that we cannot afford
to spend all our time talking about the past. It is the time to look
at what we are doing now and ask ourselves if the fiscal stance and
the monetary stance are appropriate for the situation we are in.
"It is true that the president has made a pronouncement that he does
not want the naira weakened, we have ministers and we have governors.
It is your responsibility to advise and to tell him that it is not a
sustainable policy. This is not the time for two per cent GDP growth,
and this is where we are heading to unless we take an urgent step to
retrace some of the policies we have pursued," he explained.
However, he pointed out that the challenges facing the economy
presently were not created by this administration.
"Oil prices have come down and unfortunately they came down at a time
when we are succeeding a government that did not save the revenues
when oil prices were high. The biggest challenge I had as CBN governor
was convincing politicians that there would be a day when we would
regret not saving money when oil price were high, that the leakages in
the oil sector ought not to continue and that oil is a commodity that
goes up and down. It is a very sad story. It was obvious because it
had happened previously. You had high oil prices, high revenue and you
were blowing the monies away, and when oil prices crash you don't know
how to save the situation.
"In 2009, we had a huge crisis. Oil prices crashed from $140 per
barrel to under $40 per barrel. That was the time I was coming to the
central bank. But at that time, the government had a number of
advantages because the previous administration had saved a lot. There
were fiscal buffers. Then, the central bank and Ministry of Finance
could pursue countercyclical fiscal and monetary policies.
"Even though we had devaluation, some inflation, even though we dealt
with the biggest banking crisis in history, the economy continued to
grow and people continued to be employed. But the situation today is
different," he added.
According to CBN figures, in the first two quarters of this year, the
country had spent over N500 million on debt servicing. At this rate,
the Emir noted that the country might spend over N1 trillion this
year, "which is more than the amount budgeted for health, education
and defence combined."
"The government does not have a choice, it must increase taxes and
block leakages, but the central bank has a choice and we must make use
of the opportunity to try and reduce the damage to GDP growth. If we
get back to an era of one or two per cent GDP growth, it is going to
be difficult," he warned
Firstclassnewsline.net