With the economy at a crossroads, officials of the Muhammadu Buhari government recently provided some proof that the sorely needed cohesion between fiscal and monetary policies is still lacking. While the Central Bank of Nigeria is maintaining its leash on liquidity, the Finance Ministry is anxious to inject money into the system. At a time of recession, there is an urgent need to harmonise policies to kick-start production, create jobs and halt negative growth.
The situation right now is ominous. About 4.2 million jobs have been lost in the last one year, according to the National Bureau of Statistics, which also reported an inflation rate of 17.3 per cent by August. The Debt Management Office also reported a N4.17 trillion rise in debt to reach N16.29 trillion as of June 30. External reserves have crashed to $24 billion, while the stock market is shrinking, and the naira plunged to a new low of N445 to the United States dollar on Monday on the parallel market. Crude oil price firmed slightly to $46 per barrel on Tuesday just as hopes of production recovery were dashed with the bombing at the weekend of the Bonny export terminal by Niger Delta militants.
The lack of seamless cohesion is visible. Last week, Kemi Adeosun, the Finance Minister, voiced optimism that the worst may be over with the fresh injection of N374 billion into the economy and canvassed lower interest rates expansionary measures. But, rising from its quarterly monetary policy meeting, the CBN maintained its rein by retaining its 14 per cent lending anchor and Cash Reserve Ratio, among others. Such discordant pulls need to be harmonised very quickly.
While Adeosun’s anxiety to reflate with cash infusion is the standard panacea for powering out of a recession, the CBN Governor Godwin Emefiele’s explanation that a substantial part of the total cumulative N770 billion released for capital spending in the few weeks available to the banks was being channelled to traders rather than manufacturers who need it most to keep factories running and retain workers is sound too.
This reveals the institutional weaknesses in our economic management: oversight over the banks is weak and the formal sector is also too weak to exert influence over policies and their execution. Efforts must be geared towards balancing fiscal and monetary imperatives to ensure that producers have access to credit and forex. This is a challenge that the Buhari government has to quickly confront. The Emergency Spending Bill that the government is pushing may succeed in fast-tracking the procurement process to enable funds injection to have the immediate impact, but without addressing the institutional weaknesses and corruption, it may even be counterproductive. The rent takers may well exploit loopholes to corner public funds.
The recession we are in today is a crisis foretold. Charles Soludo, a former CBN governor, warned in 2012 and again in 2014 that the government of the day was running the economy aground. A former president, Olusegun Obasanjo, also in 2012, alerted Nigerians that pervasive corruption, failure to diversify away from oil and inadequate protection of domestic industries would soon plunge Nigeria into deep poverty and recession. These and other warnings were never heeded by a fiscally reckless and corrupt regime.
Buhari needs to take very bold steps now. One is an intelligent stimulus plan using borrowed funds and structured infrastructure bonds. The tax net that captures only 10 million persons in a population of 170 million should be widened. Instead of the contemplated blanket increase, Value Added Tax should be raised significantly only on luxury items and prohibitive tariff slammed on imported goods that have viable local substitutes. Stimulus should not be just giving extra unbudgeted funds to the reckless states and local governments, but should target those sectors that will create jobs quickly – agriculture, mining, manufacturing, transportation and construction. Multiple taxes, fees, rates and tariffs that cripple businesses should be tackled.
The 36 states should operate as truly autonomous economic entities. They should accord utmost priority to agriculture, small and medium-scale enterprises and rural infrastructure. Serious efforts should be made to partner the Federal Government and foreign investors to develop solid minerals, which is on the exclusive legislative list. As long as states rely on federal allocations instead of developing thriving domestic productive activities, true prosperity will continue to elude Nigeria.
To drive fiscal responsibility, corruption and waste have to be stamped out first. Our public officials should stop living in pampered luxury at public expense. Reforms are urgently required to retool the electoral system and make the legislature a truly independent arm of the state. The greed and selfishness of federal and state lawmakers hamper good governance and economic growth while entrenching poverty.
A paradigm shift in national priorities that will emphasise production instead of the prevailing culture of consumption that imposes a food import bill of $6.5 billion annually as estimated by CNBC in January, has destroyed our domestic agriculture sector. The federal and state governments must resolve to revive cotton, groundnuts, cocoa, palm kernel/oil, rubber and mining to stimulate local manufacturing as opposed to commodity exports.
Our government and legislators should take note of the decision on Tuesday by Saudi authorities to cut the pay of public officials and follow suit. The cost of governance in Nigeria is simply not sustainable and demands sacrifices from its leaders.
Buhari should seek expertise from knowledgeable Nigerians and forge a very close working relationship with the private sector, which should henceforth take the lead in driving growth. Inheriting what he described as a “vandalised” economy, Buhari has been too slow in crafting a robust response and a synchronised economic management. In the long run, economic diversification and inclusive growth can only be achieved if we consciously develop the capacity to produce a larger variety of goods for local consumption and export earnings.
