- Dire as it is, solution not beyond the fiscal and monetary authorities
On Tuesday last week came a dire warning from the Monetary Policy Committee (MPC) of the apex bank: the current fragile economic recovery risks a relapse. Said Central Bank of Nigeria (CBN) governor, Godwin Emefiele, on behalf of the MPC: “Available forecasts of key macroeconomic indicators point to a fragile economic recovery in the second quarter of the year”. The recovery, the committee cautioned “could relapse in a more protracted recession if strong and bold monetary and fiscal policies are not activated immediately to sustain it.”
To start with, we are not surprised about this latest prognosis. To pretend otherwise is to succumb again to the illusion that the factors that have hobbled the economy have been eliminated. From what we have seen over the past few months, we know that this is far from being the case. Whereas oil prices may have recovered modestly and production boosted, the macro-economic indices are nothing to cheer: inflation, despite the climb-down, remains unbearable at 16 percent; the interest rate at above 25 percent, clearly incongruous with the country’s growth aspirations, stands out among the highest in developing countries.
The exchange rate, despite its relative stability – thanks to the modest recovery in oil prices and the relative peace in the Niger Delta in recent times, remains potentially volatile to the extent that its performance is linked to the fortunes of crude oil. For an import-dependent economy, our ports system suffers twin lethal afflictions of inefficiency and corruption. The power sector, despite the billions sunk into it, has remained comatose just as infrastructure from road to railways are, quite frankly, antediluvian.
To its credit, the Buhari administration has moved on a number of issues. For instance, Acting President Yemi Osinbajo signed three executive orders on a number of policy issues covering the promotion of transparency and efficiency in the business environment, designed to facilitate the ease of doing business; timely submission of annual budgetary estimates by all statutory and non-statutory agencies, including companies owned by the Federal Government; and support for local contents in public procurement by the Federal Government. While these are important steps, one big minus is the annual budget conundrum. At a time the economy has barely begun to crawl out of recession, consider for instance that Budget 2017 – was only signed into law in June!
The truth however is that the CBN warning could well have been released five or even 10 years ago – with or without oil-induced shocks. In other words, the issues, just as the problems they gave rise to are nothing new. Had the fiscal and monetary authorities – then and now – moved from endless dissection of problems to applying themselves to tackling the problems headlong, the country ought to have been on a steady, sustainable growth path by now.
One sure step in this direction is for the monetary authorities to move away from the current fixation with textbook orthodoxies that bear little relevance to our local problems. For, while it was not surprising that the apex again left the Monetary Policy Rate, MPR, at 14 per cent, largely unanswered is how local infrastructure-challenged businesses can match competition from their foreign counterparts where rates are under five percent. It is high time the apex bank reexamined its obsession with inflation targeting that is currently the root and branch of the excessively high cost of funds to the system.
The same also can be said of the fiscal branch that pretends to be oblivious of the policy and infrastructure imperatives so critical to turning the economy around; to the extent that both are at the heart of the current stasis under which nothing moves. This is overdue for a rethink
As for the CBN’s warning, our view is that the situation as dire as it is, is not beyond the fiscal and monetary authorities to solve. It would therefore be most regrettable should the economy be allowed to suffer a relapse.
