Two opposing forces acting on the Nigerian government’s public finance have led to the present unfortunate, but the unavoidable situation. Revenues have fallen and continue to fall; on the opposite side of the finance equation, the authorities needs have increased or widened and continue to do so.
This is a basic matter. The decrease in revenue and the increasing demand for government derive from the character or principles of our economy and polity at the moment. And because they are basic issues, they must be addressed by tackling the causes and never by fixing the symptoms or effects.
The deficit created by this has led to the ugly situation where it’s been stated that the government needed to”print money”. Sure, deficits must be funded, one way or the other, and also”printing cash is among the probable ways to do so.
However, all central banks print money, and our Naira has occasionally been published, so why the uproar now about printing cash?
The significance of the concern can be found in the frame and the imagery it evokes. As a framework, “printing money” is a rather unsavoury representation of a fiscal action (borrowing) from the country that the public all over the world considers escapist or rascally. When governments are reported to have resorted to printing money, the public usually has the belief that the authorities are unmindful of the potential effects of such an activity.
Additionally, it gives the impression of a preference by the authorities for”cheap” or costless cash, but one which is actually laden with harmful possibilities.
It is a frame that offers the government’s borrowing a suspicious or sinister coloration. It gives the impression of a government or its officers directing personnel of the central bank to a certain room filled with printing materials. In a couple of hours, the team emerges from another doorway beaming with smiles; the deed is completed and, below are some bundles of currency notes from which the authorities can start to spend.
In this manner, printing cash provides the impression of coverage rascality that could effectively undermine the fundamental principles of public finance.
How does the government fund its enormous bills that pay motley of things? These vary from office hooks to health care, environmental issues, education, highways, and other public goods, such as safety. And in our current case, the government is prosecuting various wars throughout the nation, all of which involve paying.
It’s not a secret that the government’s funds are in shortage. It is also clear that the shortage has been exacerbated by the impact of COVID-19, which has succeeded in beaming attention to the vulnerable nature of the Nigerian economy.
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In January 2021, the federal government recorded a deficit of N485.51 billion, because of a mix of variables. One, the purchase price of oil dropped, which means that earnings generated from oil has fallen. Additionally, although the catch-all term non-oil revenue” now accounts for approximately 54.6per cent of total revenue in the January period, its ascendancy as a revenue source is yet to lift the country out of its financial doldrums.
The key alternatives available to your government for financing its deficits are to raise taxes, borrow from the economies (locally and externally), and needless to say borrow from the central bank, which can be known by its framework, printing cash.
Raising taxes could mean both things.
The first option has its drawbacks and therefore can’t be pursued for long without any dire consequences. The government can’t arbitrarily increase tax otherwise, the economy runs the risk of having a fiscal drag.
This is a phenomenon described by public finance experts as”if the market wishes to move forward, something could be drawing it ” In theory and in fact, it portrays a scenario in which the government takes so much from business in the shape of taxes which not enough is left for reinvestment or return to help raise the market and set it on the course of growth.
Another alternative available to the government to fund a shortage is to borrow. Of course, we are aware that our government was doing a great deal of borrowing both locally and out of overseas markets. Both have their downsides, being debts. In the event of domestic borrowing, the concern is that government crowds out the private sector by competing with businesses for funds that are available.
The next choice, often the last resort, is what’s often referred to as”printing money.” In plain speech, “printing money” only means government borrowing from the central bank. The premise of this is the fact that the central bank is your banker to the government.
It touches on the issue of the independence of the central bank in a given country. How independent is the central bank? How much impact can the government have on the choices of the bank? These concerns aren’t peculiar to Nigeria but use universally. They reflect the fact that the relationship between the bank and the government of the day is of interest to each member of the nation.
The key issue with printing money is its own unsustainable nature. It is unsustainable because frequent resort to it by the authorities has harmful effects on the market. Its biggest drawback is the inflationary effect, which ultimately undermines the strength of their currency and the welfare of citizens.
Government borrowing from the central bank back is generally through what’s called”Ways and means”. It’s an overdraft, a short-term accommodation for an economic agent whose current income has fallen short of its expenditure.
Thus, it becomes an abnormality if a person who came in for a temporary accommodation now settles for a permanent abode.
Already the stress on the financial system is becoming visible. The sum represents deficit financing by the central bank to the government through ways and means.
