By The Editor
Five years from the economic decline in 2016, the fiscal stimulus that the Central Bank of Nigeria (CBN) Governor, Mr. Godwin Emefiele, said was desperately needed “to spend the economy out of recession” has not happened. Exiting recession was therefore by luck, according to the governor. The random walk display of economic growth numbers since then stands to affirm it is just by luck and chance.
Fiscal gap remains a serious flaw in an economy hungry for growth and development and the monetary policy tap keeps tightening for fear of inflation. Who then is responsible for letting new money reach the productive sectors to drive economic growth?
The monetary policy committee of the Central Bank of Nigeria has squeezed bank liquidity further by jerking up cash reserve ratio from 22.5 percent to 27.5 percent. This effectively sterilizes bank liquidity to that extent, which in turn, restricts bank credit windows.
While the monetary authority sacrifices production for price and exchange rate stability, the fiscal managers are preoccupied with meeting recurrent expenditure and servicing debts. If productive activities are able to grow, it is by luck of oil price gains or the chance that new debts are secured and part of capital budget managed to be funded and released.
A crash in money market rates against prevailing high domestic bond yields has widened the channel of funds flow from the private sector to government’s coffers – sidelining businesses and industries in the credit markets.
Through the first three quarters of 2019, GDP growth failed to match the 2.4 percent growth in the first quarter of 2018. For five years and counting, annual population growth of 2.6 percent has exceeded GDP growth but policymakers aren’t heeding the warning bell of the potential danger of rising unemployment and poverty.
Economic growth is forecast to remain well below historic averages in the immediate years ahead– well below the level needed to fix poverty. This means for five years running to 2020 and beyond, the country’s per capita income will be on the decline. With burgeoning youth population unmatched by job growth, unemployment could rise further from the already historic high of 40 percent.
The strength to even keep economic growth in the region of 2 percent came from luck that crude oil prices remained stable for a good part of 2019. Fiscal and monetary policy actions failed to quicken the non-oil economy – which continued to slow down.
The oil sector was the GDP growth driver, which grew by 6.5 per cent in the third quarter of last year, while the non-oil sector grew by 1.85 per cent, summing up to the GDP growth of 2.38 percent at the end of the quarter. The final quarter of the year is expected to see a slowdown to 2.2 percent, according to the CBN.
The oil sector that is the GDP growth driver faces uncertainty this year and high prospects for oil price drop poses a major downside risk for Nigeria. The possibility of decelerating oil GDP meeting the creeping non-oil GDP points the economy towards one or two steps away from a decline.
Monetary and fiscal governors continue to lean on the dicey oil sector to cover up the inability to prop up the non-oil sector sufficiently to match, even exceed the contribution of oil to GDP. The job that needs to be done lies within the mandates of monetary and fiscal authorities in widening the windows of credit and capital delivery to the private sector.
The CBN’s increase in loan-deposit ratio last year forced banks to return to their lending desks unwillingly. That boosted bank credit to the private sector by about N2 trillion within the second half of the year. Rather than reinforce the liquidity of banks to sustain the positive trend, the bank jerked up cash reserve ratio a clear 500 basis points, cutting off 27.5 percent of bank deposits from lending.
Placing this policy side by side with a crash in bank deposit rates as well as the inexplicable high lending rates, the indications are ominous for savers, credit providers as well as borrowers. It is simply telling depositors to look elsewhere for saving and investing, banks to cut down on lending and borrowers to prepare for stricter terms of credit and higher interest rates.
Between the monetary and fiscal authorities, there is no clear cut guide of who is to do what in stimulating the production and consumption functions of the economy. The slip into the worst economic recession in history in 2016 was the cost the nation was made to pay for regulatory policy meddling.
The Central Bank has kept monetary policy consistently stringent all the way but blames the fiscal authorities for sleeping on duty in respect of stimulatory spending. Without accommodative monetary policy anywhere along the line, it cannot be seen however how the bank can reasonably wash its hands off the monetary and fiscal policy imbalance and reasonably claim that it has done the monetary policy bit of the job.
The call by the bank’s governor for aggressive fiscal injections has been recurring since 2016. The same call sounded again from the bank’s monetary policy committee in its latest meeting on the 24th January this year. The fiscal managers have not heeded the calls all the way and the committee seems to be doing the same thing expecting a different result.
Monetary and fiscal policy making need to move urgently from the rule books into the pragmatic box. The lack luster approach to stimulatory fiscal injections needs to be avoided this year in view of elevated downside risk of the oil market. The Central Bank needs to spell out clearly and in specific terms time bound monetary and fiscal responses that have become imperative.
Government and its regulatory authorities are reminded that it is their duty to formulate and implement policies that tide the nation, its people and economy over difficulties and threats to progress and wellbeing. The importance of avoiding another sluggish start that could lead to a relapse into economic recession has been stressed.
