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Soludo urges FG to review TSA, remove subsidy

By on November 21, 2015

A former Governor of the Central Bank of Nigeria, Prof. Chukwuma Soludo, on Thursday faulted the implementation of the Treasury Single Account by the Federal Government and called for its immediate review.

He also advised President Muhammadu Buhari to remove the controversial fuel subsidy and privatise the nation’s refineries immediately.

Soludo spoke in Lagos during the third anniversary lecture of the RealNews magazine.

He said the TSA policy was good but needed some reviews, because the government could not afford to keep funds with the CBN and starve the economy of the necessary liquidity.

Soludo said, “The Treasury Single Account is a great initiative, and I congratulate PMB for that. However, we don’t have to return to the past of having every penny of government largely redundant in the central bank.

“For an economy desperately in need of stimulation, piling up idle cash at the CBN is not sound economics. We should deploy technology and transparent rules to implement a hub and spoke model of the TSA whereby the CBN is the hub, while the commercial banks remain the spoke.

“Of course, there are some benefits of keeping it at the CBN, including possible anti-corruption outcome; but as a proverb says, ‘you don’t set your house ablaze because of the irritation of a rat in the house’. We can rid the system of corruption and realise all the benefits of the TSA but still not starve the economy of the necessary liquidity.”

On fuel subsidy, the former CBN governor said Buhari had the moral authority and legitimacy to quickly remove it and privatise the refineries.

“The fundamental case against subsidy removal is not economic: it is the fact that the citizens do not trust the government to optimise the use of the proceeds for their welfare. If PMB does not deal with these issues now, I wonder when, if ever,” he said.

According to Soludo, the current policy regime of the CBN is inconsistent with the objectives of creating jobs, growing income and reducing poverty.

He said the economic hardship in the country was largely as a result of the “choice rather than the oil price slump alone,” adding that current slump of the economy was predictable and largely avoidable.

The renowned economist noted that a delayed or dysfunctional adjustment of the national currency, especially during a period of external shock, was usually costly.

He said, “Delayed or dysfunctional adjustment is costly. Crude controls to sustain an artificially fixed exchange rate create permanent uncertainty and the currency remains under siege; it becomes a dead weight loss to the economy.

“Fixing the rate and reliance on controls to sustain the peg is a casual way to prove to everyone that the currency is overvalued and discernible investors exercise their option to ‘wait’ or expect policymakers to frontload incentives to more than compensate for the future exchange rate risks they are taking today.

“In either case, investment and the much needed capital inflows into the economy wait, or as is happening now, continue to flow out. It is an irony that in the global economy of today with surfeit of liquidity, Nigeria (with very low savings rate and desperately in need of foreign savings) is suffering from massive capital flight. What a paradox!”

Soludo added that “external shocks do not kill an economy; it is the choice of specific policy regime that can lessen or worsen the effects of the shock.”

Soludo argued that there were better ways to implement capital controls if needed.

He said, “Every economy is controlled in one way or the other. The question is what kind of controls or regulations can be implemented to address observed market failures that will be credible, transparent, and without distorting or perverting the incentive structure so that we can have sustainably shared prosperity.”

He also criticised the plan to establish a national carrier, saying it was not viable now when the government was facing financial crises and needed to spend money to fix roads.

The ex-CBN governor said the regime of former President Goodluck Jonathan had “the worst economic management team” relative to available resources.

He also lamented that the Jonathan administration left the country with an “unprecedented rate of debt accumulation.”
[Punch]