Thread by @zeal_a

This isn't going to be an easy thread but I'll do my best to be as matter-of-fact as possible.

Indulge me, take the poll before you continue reading!

We use the term a lot, but does anyone know what it costs the country, in monetary terms, to defend the currency?
@segalink

Let's start with what we call OMO (Open Market Operations) bills which are special monetary policy tools used by @cenbank.

However, since 2017, they have been anything but special.

2017 to date, we have had almost 600 OMO issuances which is more than what we had for 10yrs prior

Total issuances since 2017 is N35trillion (TRILLION is not a typo) or lets say about $100billion equivalent.

These OMO bills are issues at quite attractive rates to "entice" foreign investors to bring USD into the economy and invest in these instruments.

In the same timeframe we issued OMO bills of $100billion, we attracted $40billion in FDI of which 75% was portfolio investments!

If we conservatively assume the OMO bills yield 13%pa, we spent N4.5trillion ($13billion) on interest alone!! no value add, just cost of attraction

Part of the attraction incentives to the foreign investors, CBN introduced Futures (in layman terms, a guarantee on an FX rate to exit your investment).

These Futures are a very important hedging tool, but CBN deliberately mispriced them and that part of the cost.

About $15.5billion (by my rough estimate) of Futures were sold since inception in mid 2016 and I'll use N80 as the average mis-pricing of each contract. (minimum misprice is N40 and max was about N120)

That's N1.24Trillion

So:
1. N4.5trillion on OMO bills interest cost
2. N1.24trillion in Futures

That's N5.7trillion naira spent to attract foreign investors to create USD cashflow in order to ease pressure on the currency and support our inability to produce locally.

This nearly N6trillion is spent by the @cenbank and this is with a need for appropriation, has little or no oversight and we need to pull teeth to see the CBN financials.

Somehow, N6trillion can be spent over 3years and no one but the CBN knows!

Now, if we add the roughly N1trillion we spend annually to subsidise petrol, you start to see we are pushing to N10trillion naira that the country spends on...not fair to say nothing, but it's very close.

For perspective, from @BudgITng, here's the FGs total revenue

For another perspective, here's our cumulative capital expenditure from 2011 which is less than what we have burnt on invincible, unbudgeted, unaccounted for, opaque "defending the currency" and fuel subsidy.

so seemingly, we are spending more than the FGs revenue, multiples of our annual capital expenditure on "defending the currency".

At this cost, is it prudent for a country struggling with obscene infrastructural deficits, astronomical debt service to revenue ratio...??

@DoubleEph , @seunonigbide , @TunjiAndrews , @ugodre , @NaijaFlyingDr , @_yemia

Can you guys take a look and chip in

As emotional as we choose to be about subsidies, (whether fuel or high interest rates for FPIs) is the cost worth it in the long run? Can we afford it?