The financing of the Nigerian civil war and its implications for the future economy of the nation

Lecture delivered under the joint auspices of the Geographical Society and the Federalist Society of Nigeria at the University of Ibadan on 16th May, 1970.

CONTINUED FROM LAST WEEK

Indirect taxation is, by nature, a prolific, convenient, and less painful source of revenue. The measures introduced in this realm, during the war, are too numerous to mention. Suffice it, therefore, for me to say that we exploited this source to the fullest extent compatible with economy and the monetary policy adopted by the Government.

Since our recurrent revenue could not meet our recurrent expenditure, we had to resort to three different forms of short-term borrowing. They are: the Treasury Bills, the Treasury Certificates, and the Ways and Means Advances which, by law, had to be retired at the end of the fiscal year. The Treasury Certificates were a wartime device, and are of 24-month maturity, as against Treasury Bills which are of 3-month duration only. Treasury Certificates were introduced in order, as we had first thought to obviate the necessity of raising the level of Treasury Bills beyond 8.5 per cent of the estimated Federal revenue. We had hoped, at the same time, that we would not have to depend very much on this new fiscal weapon. But subsequent events did not only necessitate our having to raise the level of Treasury Bills to 1.50 per cent of the aggregate revenues of Federal and State Governments, but also compelled us to lean more heavily on Treasury Certificates than we had previously contemplated.

I would like to remark, at this juncture, that by resorting frequently to Treasury Bills, Treasury Certificates, and Ways and Means Advances as we did during the war, we knew that we were, pure and simple, pursuing the slippery path of inflation. But having reached the end of our revenue-raising tether, there was no other path open to us. In other words, we felt ourselves irresistibly compelled to tread this path, determined, however, to dig our toes into the ground after every completed step, and to do everything possible to ensure that the journey, though difficult was safe. We had good luck on our side. The bulk of the Treasury Bills and Certificates issued up to the end of the war that is £240.3 million out of a total of £253 million was taken up by the Commercial Banks and the rest of the private sector. Though our Compulsory Savings Scheme was not as successful as we had envisaged, yet it must have gone some way to help to ease the pressure of inflation. So also were the effects of our various tax measures; and of voluntary savings on the part of many Nigerians, including the men and women of the Armed Forces. Above all, we deliberately encouraged the output of more goods. Of its own volition, the Federal Ministry of Finance initiated the grant of £.5 million annually to the States for agricultural development. We could have given more if asked, and if a suitable formula for its allocation among them had been agreed to by the States. The net result of all these measures is that the Consumer Price Index, with an increase of approximately 6 percent over the 1966 level, has not, happily, reflected the full increase in the volume of money put into circulation since 1967.

Throughout the war, we were extremely anxious to steer clear of balance of payments difficulties. We had no doubt that if we were faced with any such difficulties, we would have been subjected to unbearable humiliation and embarrassment. The supporters of Ojukwu, some of whom were very powerful and dominant in international finance, would have been too happy to seize the opportunity of such a financial crisis to subdue us, or, at least, to make things extremely difficult for us. They would certainly have exploited the situation to drive a hard bargain on behalf of the rebels. We, therefore, made up our minds to conduct our financial affairs in such a manner as to preclude our having to have recourse to the International Monetary Fund for anything, even for our Automatic Drawing Rights. It is not that the International Monetary Fund would not have been sympathetic. The important point which weighed on our minds was that the stringent and constraining circumstances antecedent to such a recourse would have dealt a shattering blow to our morale and self-confidence, and the country might, as a result, suffer diplomatic defeat on a number of fronts. So, we resolved to avoid this ugly eventuality, and the economy responded, beautifully and gratifyingly to our desire.

In pursuance of the policy of conserving our foreign exchange reserve, we had to cut down heavily on our imp