THE alarm sounded recently by the Central Bank of Nigeria on the economy effectively poured cold water on earlier optimism that the country was poised to emerge from recession to significant growth. Like the apex bank, the International Monetary Fund has also passed a less optimistic verdict on the economy. In its latest report, the Bretton Woods institution says that at 0.8 per cent (Gross Domestic Product), growth in 2017 will not be sufficient to make a dent in reducing unemployment and poverty. Unless a realistic stimulus plan is immediately implemented, the bank warned, a worse cycle of recession is imminent. But will the government heed this latest alert or allow the economic meltdown to continue?
Going by current form, one needs a lot of optimism to expect a quick response from the Muhammadu Buhari government, which, two years into its four-year term, has not been exemplary in managing an economy in a tailspin. Inheriting a battered ship headlined by crashing global oil prices, it failed to produce an emergency stimulus plan, which allowed the economy to slip into recession by the first quarter of 2016. But the government has run out of options: it must come up with a robust short-term stimulus and medium-to-long-term reform plans to turn the economy around, reboot the productive sectors and reverse the explosive unemployment rate. The CBN’s Monetary Policy Committee put it starkly: though the International Monetary Fund had forecast Nigeria emerging from recession in the third quarter of this year, the 0.5 per cent contraction in GDP in the first quarter of 2017 reported by the National Bureau of Statistics fell slightly short of predictions. Recovery at that rate, the MPC said, is fragile and is expected to remain that way by the time data from the second quarter of 2017 is reported. Growth at this rate, the IMF said, would not reduce unemployment and poverty.
The CBN has now publicly acknowledged the absence of a well-coordinated economic plan to tackle the dysfunctional contraption this government inherited. Acting President Yemi Osinbajo should get to work post-haste to address the bank’s complaint of dire risks posed by weak financial intermediation poorly targeted fiscal stimulus and absence of structural programme implementation.
The urgent need for stronger fiscal and monetary policies is obvious. Oil prices that account for over 90 per cent of our export earnings have failed to rebound to pre-August 2014 levels of $90-$100 per barrel, hovering in the last few months at between $40 and $55 per barrel; this translates to keeping foreign reserves down as well as other fiscal buffers like the Excess Crude Account and the Sovereign Wealth Fund that stood at $2.29 billion and $2.9 billion respectively by May. The economy is still running on a meagre 4,000 megawatts of power, crippling industry and social services, while the national currency has been battered.
When confronted with recession, responsive governments opt for short-term stimulus – deployment of monetary and fiscal policy changes to kick-start growth – with the preservation of jobs and stimulating production as priorities. So far, the administration has taken the standard steps of borrowing and injecting funds into the foreign exchange market to stabilise the naira; it has plugged some leakages through the Treasury Single Account policy that draws revenues accruing to public agencies into government’s account at the CBN rather than the previous practice that allowed sharp practices, including outright theft, while saving over N200 billion by shaving off tens of thousands of fictitious names from the payroll in 2016 alone.
But China’s more robust response to the global financial crisis in 2007-08 was a hefty $586 billion stimulus plan; America’s $152 billion stimulus in 2008 targeted tax rebates, stimulating business investments and boosting consumer spending. Spain’s economic stimulus plan in 2008 featured €8 billion component in new infrastructure spending that allowed the country to exit recession by early 2010.
This economy is floundering because government has not been able to produce a coherent, workable stimulus and a reform programme to cut dependence on oil revenues and prices, boost production and exports and reverse unemployment that rose to 14.2 per cent by the fourth quarter of 2016 and underemployment to 21 per cent, up from 13.9 per cent and 19.7 per cent respectively in the preceding quarter.
We do have disparate programmes like the Economic Recovery and Growth Plan, CBN’s Investor and Exporter forex windows and tax holidays for select industries, but these have not been effectively strung together nor has there been a serious effort to harmonise fiscal with monetary policy. The United Nations Development Programme argues that financial crisis offers emerging economies an opportunity to redirect the economy towards a sustainable path and eliminate the distortions that entrench poverty and deter investments and job creation.
Strangely, this administration carries on at a leisurely pace as if it has all the time in the world, perhaps hinging all its hopes on rebounding on oil prices. The UNDP, however, recommends an urgent fiscal stimulus plan to finance investments in mining, manufacturing, agriculture, small businesses and start-ups. Labour-intensive investments in infrastructure should be targeted and the UNDP said this strategy helped Ukraine, while social protection schemes and safety nets assisted Cambodia and Malawi through funding small holder farmers and artisanal production. Privatisation of commercial state assets is another profitable road not taken.
Nigeria should stop advertising itself as a primitive enclave by mistaking drawing down from the ECA and refunds of debt repayment overpayments for stimulus; unbudgeted funds deployed by fiscally reckless state governors to pay salary arrears and fund extravagance cannot reinvigorate the economy. The National Assembly should stop slashing funding for critical infrastructure in favour of self-enriching trivia.
In the short term, the Buhari government will need to do more to right the economy, through an aggressive policy on stable electricity supply and job creation targeted fiscal stimulus. Fiscal measures that will complement monetary policy and bring down lending rates from today’s prohibitive 17-28 per cent and stimulate exports should be rolled out. Japan has brought interest rates to the floor at 0.5-1 per cent. Economic recovery success should be measured primarily by reversing job losses that cumulatively totalled 4.5 million between 2015 and late 2016, according to quarterly reports from the NBS, while 272 member firms of the Manufacturing Association of Nigeria were shut down. In the long run, this failed political structure that is dragging back the country’s economic potential needs to be turned into a workable and productive machine.