On Thursday, Nigerians were left in distress after the Edo state governor, Godwin Obaseki, revealed that the federal government printed N60 billion to augment allocation shared for March.
“We are in trouble, huge financial trouble,” Obaseki who appeared not comfortable with the unproductive nature of the country noted and then went on to note that “when we got FAAC for March, the federal government printed additional N50-N60 billion to top up for us to share.”
And to stress the extent of the problem, Obaseki said “This April, we will go to Abuja and share. By the end of this year, our total borrowings are going to be within N15-N16 trillion. Imagine a family that is just borrowing without any means to pay back and nobody is looking at that, everybody is looking at 2023, everybody is blaming Mr. President as if he is a magician.”
This isn’t good but as Obaseki rightly observed, no one is paying interest in the economic disaster that looms. It seems like many Nigerians are failing to realize the possible effect of printing money on an economy, especially one like ours that is largely dependant on oil revenue, which is highly unpredictable due to external factors.
No doubt, the COVID-19 pandemic has created a big economic problem, not only for Nigeria but the world over. However, printing money to shore up revenue will simply make the problem bigger. And here is why. Going by Obaseki’s disclosure, the money printed by the federal government was simply shared by the various units of government.
In essence, they printed money to pay salaries and other recurrent expenditures, which Obaseki himself admitted has become a feature of governance in Nigeria. That is a wrong one especially considering the country’s rising inflation, which could go worse with the dumping of money into the economy without commensurate activities to absorb it.
Printing money is not a good approach to solving economic dilemmas because it doesn’t increase economic output but only increases the amount of cash circulating in the economy. If printing more money is the federal government’s answer to revenue shortfall, then Nigerians should begin to worry about the idea of those handling the economy of the country.
To get my drift, let us look at Zimbabwe, and how it is almost impossible for a developing country to get away with printing local currency to shore up revenue losses. While printing money may seem good on a short-term basis because it provided the government an easy route to funding certain expenditures, the long-term implication is always unpalatable and turn out to be a source of unimaginable hardship on citizens.
Around 2007-2008, the Mugabe administration was faced with a revenue shortage just as Nigeria could be presently facing, and as a way out, it chose to print money to meet up with obligations. But it only took few months for the implication to bear, provoking the country’s second-worst hyperinflation in world history.
It was so bad that local currency became almost useless and was ditched by citizens for foreign currencies to do basic transactions. That is how bad printing money to an economy could be, and for a country like Nigeria with a huge population, it will be a disaster. In February, the National Bureau of Statistics (NBC) put Nigeria’s inflation at 17.33 %, representing the highest rate recorded in four years, and experts believe that this trend will likely continue for some months.
So, those behind the idea of printing money to augment revenue shortfall did a terrible job. In their desperation for a quick fix to the economic quagmire that the pandemic necessitated, they will end up pushing the country into a bigger problem in the long run. If truly the interest is to solve the revenue problem that seems to face the country even before the pandemic, then printing money would never be an option.
For decades, Nigeria bet every hope on oil as the main source of revenue. Even when its population continues to grow and the prospect of an oil economy is fading, government upon government failed to explore other avenues to generate revenue to meet up with expenses. With the pandemic slowing down oil demands and foreign credit scarce to come by, the Nigerian government resorted to printing money in the expectation that it would have money to spend.
That is a bad strategy and makes the conclusion made by Obaseki that Nigeria is in deep financial trouble so apt. With inflation going out of control, the local currency, no matter how much government prints, will experience a sharp fall in value. Prices of commodities will change frequently and uncertainty will pervade the land. Instead of printing money as a means of shoring up revenue, what the government should simply focus on is improving local output and bringing in sensible policies that would attract foreign investors. That is the way out of the economic quagmire we’re in and not printing money.