Amaechi Ogbonna
Economic variables are hardly static but are a moving target, swinging up and down a nation’s economic ladder depending on where the pressures are coming from.
That explains why a fortnight ago when the National Bureau of Statistics (NBS) latest economic indicators triggered the alarm that Nigeria’s spiraling inflation was heading to unpleasant direction, propelled by effects of COVID-19 pandemic, not a few commentators wavered at the conclusion that the right cord for fiscal and monetary policy harmony was yet to be struck.
Although NBS’s explanatory notes had headlined food inflation as a culprit for the spike, insecurity, capacity and infrastructure challenges in the various sectors of the economy further worsened by COVID -19 pandemic can certainly not be left out.
With Nigeria’s inflation rate at 13.22 percent in August 2020, the highest in 29 months, the probing question being asked by many centred around the functionality of synergy between the nation’s fiscal and monetary authorities and how such is impacting the economy to deliver the rate of growth needed to stave off a looming recession in the months ahead.
That perhaps explains last week’s decision by the Monetary Policy Committee (MPC) of the Central Bank of Nigeria (CBN) to reduce the monetary policy rate (MPR) by 100 basis points from 12.5 percent to 11.5 percent as part policy response to checkmate the effects of the pandemic on the nation’s fledgling economy.
As CBN governor Godwin Emefiele, explained while briefing at the MPC meeting, “reducing the MPR will put pressure on the deposit money banks to lower cost of credit since cheaper credit will improve demand, stimulate production, reduce unemployment and support the recovery of output growth. Explaining the committee’s decision, the governor further said: “Bearing in mind its primary mandate of price stability and the need to support the recovery of output growth, the likely action to address the rise in domestic prices would have been to tighten as it would moderate upward pressure on prices and attract fresh capital to improve the state of the economy and external reserves. “It may stifle the recovery of output growth and drag the economy further into contraction.” He further argued that holding rates would allow the economy to adjust to the stimulus measures put in place by monetary and fiscal authorities and give the MPC more time to assess the impact on the economy.
Indeed, at negative 6.1 percent of GDP, it has become imperative to say that Nigeria’s economic managers have a lot of work to do to save the country from another looming recession already predicted by several pundits.
Indeed, given the severity of the pandemic across the global, its associated high rate of contraction could hardly have come as a surprise to keen watchers of the Nigerian economy.
This can particularly be deciphered considering that the federal and states governments in their attempt to stem the spread of coronavirus, had shut down nearly all sectors of the economy.
From aviation, hospitality, oil and gas, transportation and entertainment industries it was total shutdown leaving the pandemic to take a devastating toll that left the citizens in hunger and deprivation.
This wholesale pause on key economic sectors also meant that government revenues equally took a big hit.
A recent study by the Copenhagen Consensus Centre in collaboration with the National Institute for Legislative and Democratic Studies (NILDS) on the impact of the pandemic on Nigeria revealed the country’s GDP lost a whopping $373.5 billion to lockdowns and other adjustments that affected the economy due to the pandemic.
The study also found out that the moderate social distancing and school closure policies by Nigeria reduced deaths by 12,000, while saving 102,000 people from dying from the disease.
It however added that another 17,500 were spared from better HIV treatment and fewer traffic deaths.
The study also found out that social distancing caused an excess of 107,000 deaths from malaria, tuberculosis and child malnutrition because of less health outreach, movement restrictions and economic tremors during the period.
The study further noted: “more life years would be lost than gained, as deaths avoided from COVID-19 are likely to be of older people, whereas deaths from the remaining causes are likely to be of younger people. Closing schools for nine months would mean that each child receives nine months less education. This would make each child less productive in their adult years. In total, it is estimated that the social cost of closing schools for Nigeria could be around $5.7 billion – the present value of income loss for more than 25 million children over the next 50 years”, the report noted.
While the above findings may be considered grave for a nation still struggling with a plethora of economic challenges, there have been so much anxiety about the effects of the shutdowns spilling into another quarter of negative growth to confine the economy to a second recession with more grievous consequences.
But just as the Central Bank of Nigeria (CBN) complemented the Federal Government’s fiscal policies to pull the economy from the precipice of 2016 recession, so much so is still being expected of the apex bank in the current dispensation when Coronavirus had virtually paralysed key sectors of the nation’s economy.
With economy already buffeted by stagflation and rising inflation, slow growth, uptick in unemployment, coupled with high Naira exchange rate, analysts are predicting that Q3 economic indicators might be worse unless urgent steps are taken by monetary and fiscal authorities to rave up production through Investments in critical infrastructure like – health, railway, roads as well as extending government’s stimulus packages to ailing sectors.
A major concern here is that while previous efforts at stimulating the nation’s traumatised economy yielded a meager 1.87 percent growth in Q1, 2020, achieving much stellar performances would require the governments to sustain economic activities through a robust set of interventions in the sectors amidst dwindling revenues.
However, stakeholders who spoke to Daily Sun have argued that using the Nigeria Economic Sustainability Plan (NESP), approved by the Federal Executive Council (FEC) on June 24, 2020, Nigeria stands a chance to stem the severity of another looming recession.
According to them, the Vice President Yemi Osinbajo, headed -ESC, comprising several Cabinet Ministers as well as the Group Managing Director of the NNPC and the Governor of the Central Bank of Nigeria (CBN) offers a perfect blend of fiscal and monetary synergy the economy needs at this auspicious time to pull through the constrictions of COVID-19 pandemic.
As a 12-month SPV, the Committee was given a N2.3 Trillion ‘Transit’ Plan between the Economic Recovery and Growth Plan (ERGP) and the successor plan, NESP which is being funded with N500 billion from Special FGN Accounts, N1.1 trillion from the CBN in the form of structured lending, N334 billion, from external bilateral/multilateral sources and N302.9 billion from other funding sources driven by the principles, of local content and self reliance through promoting local production, local services, local innovation, and the use of local materials, in line with the Mandate of Presidential Executive Order 5 of 2017, on the Promotion of Nigerian Content in Contracts and Science, Engineering and Technology, based on President Buhari’s mantra to “produce what we eat and consume what we produce.”
Also, low-interest loans to boost local manufacturing and production across critical sectors, including the pharmaceutical, aviation, hotels and the hospitality industry, private schools, road transportation, technology companies, and the creative industry, amongst others.
Similarly a Guaranteed Offtake Scheme for MSMEs will function by making government a key purchaser of specific priority products made by MSMEs, like PPE, face masks, face-shields, processed food, pharmaceuticals among others.
Other incentives will take the form of low-interest loans, and the easing of procedures for registration, licensing, obtaining permits, with mechanics, tailors, artisans, petty traders and other informal business people being supported to grow.
The Plan intends to ensure the cultivation of between 20,000 and 100,000 hectares of new farmland in every State, as well as support offtake and agro-processing, with low-interest credit and Extensive Public Works and Road Construction Programme.
Although Nigerian governments in the sixty years of independence have never been found deficient in the areas of policy design, the bane of the country’s underdevelopment has remained its deep rooted systemic corruption and lack of political will to pursue development goals for the good of the citizens.
An overview of the fiscal and monetary policy initiatives of the government since the outbreak of the COVID-19 pandemic shows the synergy and partnership exists but what is necessary at this stage is selfless implementation by all parties concerned without rent seeking mindsets that often drain capital budgets.
In his contribution, on how the monetary authorities can complement what Nigeria’s fiscal authorities are doing to rave up the economy Leader, PWC, Andrew Nevin, said..”The Central Bank has always been a technical manager of the monetary policy, highly skilled in its technical issues as we have seen in its MPC rate by a 100 bases point, which is probably helpful. But on its own there is a limit to how much monetary policy can do.
By fiscal policy, which is spending pattern of government, the PWC has always advocated that Nigeria needs structural change to be able to increase its GDP, we need to grow on 60 percent inclusive sustainable way, but that requires a much higher level of investment.
So, the central question for the government at all levels is why are people not investing in Nigeria, why Diasporans and outsiders are not investing in Nigeria? Until we solve that conundrum, the nation cannot fasten the GDP growth.
And of course with the recession occasioned by the COVID -19, if we must come out of that recession, investment is the way.
PWC Nigeria has been pressing for the govt to mark the dead gap, as there are many assets that are not really delivering to the country. Some are under remitting like the NNPC, NIMASA, and other parastatals. Assets like Ajaokuta Steel company and refineries are draining resources.
Beyond the federal and state govt assets, we also have private assets particularly in Rivers State that are locked up and need to be revived. The govt needs to unlock these dead assets to move the economy forward. We have seen some important moves like the subsidy on fuel removed, and also hike in electricity tarrif, which is required remarkably to get investment in the electricity sector, but more work needs to be done to make sure we get that aspect we need.
Also commenting, the President of the Pharmaceutical Society of Nigeria (PSN), Sam Ohuabunwa, noted that the main assignments of the monetary authorities are that they should ensure that the rate of inflation and interest rate are kept low for the real sector adding that maintaining Price stability in the market place was strategic too.
He however called on the monetary authority to give the financial market longterm bond, where manufacturers and companies in the real sector can borrow.
“If we keep depending on the short term end of the market, the real sector cannot grow.
So, manufacturers, small and medium will need low interest rate, longer facilities and loans and with lower inflation, I think these will complement what the fiscal authorities are doing, and will put the economy in good shape.
Commenting on of fears of massive GDP decline, in Q3 2020, Managing Director, APT Securities – Kurfi Garba said “I disagree with the experts prediction that the third quarter figures will be worse. Instead, I see the third quarter becoming better because the economy is beginning to run better.
However, for the Organised Private Sector (OPS) what government can do is to grant more liberal tax rebate to the productive economy in addition to other measures necessary to save the economy from total collapse.
Speaking on how to better align monetary and fiscal policies to achieve GDP growth in the months ahead, the Nigeria Employers Consultative Association (NECA) argued that most businesses may find it difficult to survive without government assistance. The Director General of NECA, Timothy Olawale, said the Association was advocating among other things for tax rebate for businesses traumatised by COVID-19 pandemic.
According to him, the rebate has become so crucial especially for companies in critical sectors like aviation, manufacturing, hotels & accommodations.