Given how evidently unfit for purpose the Buhari administration’s pivot to dirigiste policies have been as a solution to our economic ills, an obvious answer is: “Less of what we have done so far!” We will need, therefore, to rein in the government’s bulimia for borrowing, especially through a more conscientious reform of the public service.
It is no longer news that both the International Monetary Fund (IMF) and the World Bank have reduced their expectations for economic growth in Nigeria this year. While the IMF pared 0.2 percentage points off its October 2020 World Economic Outlook projections, the World Bank shaved 0.6 percentage points off its June 2020 Global Economic Prospects estimate. In their respective publications last month, both institutions now expect the economy to grow by 1.5 per cent and 1.1 per cent in 2021. The Fund, however, expects growth to return to 2.5 per cent next year. While the Bank inks in a 1.8 per cent growth in 2022.
Given the depths that the economy sunk to last year, as it struggled to contain the spread of the virus that causes COVID-19, these growth rates mean that the economy will not be returning to pre-pandemic trends until sometime after 2023. These growth rates also offer a scintilla of hope for Nigerians, ever seeking silver linings in the worst of thunderstorms. The pickings are slim, however. Agriculture, a big contributor to domestic output, and a large employer of labour, treaded deep water all through last year. The floods in parts of the nation’s breadbasket was one reason. But as the World Bank points out, the sector was equally constrained by logistic bottlenecks. At the best of times in the country, it has remained a difficulty getting inputs to the farms and evacuating harvests. Understandably, “food price pressures” was one of the main economic narratives off the economy last year.
The other tale that the markets told was of the weakening of the naira. Expectedly, this fed into rising prices last year. The bigger tale, though, is how “falling oil activity” hurt government revenues over the last 12 months. While the proximate causes of this development, according to the World Bank, were “weaker international prices and OPEC quotas”, the main effect was to drive the public sector’s borrowing requirement up ― distressingly so, some might say. By failing to add to the balance on the gross external reserves, low oil prices and production levels put additional pressure on the naira’s exchange rate.
Gloomy, though, 2020 was, the problem is that 2021 is unlikely to be much different, aside from a mild recovery. Main sources of worry remain. The World Bank lists these as including “low oil prices, falling public investment due to weak government revenues, constrained private investment due to firm failures, and subdued foreign investor confidence”.
Even though businesses protested the loudest, households felt this pressure the most. Employment losses on the back of last year’s economic contraction was compounded by the toll of rising prices on disposable incomes. Consumer spending, about two-thirds of economic output, shrivelled. Severely enough, the World Bank thinks, to have set average living standards back in Nigeria by several decades.
Gloomy, though, 2020 was, the problem is that 2021 is unlikely to be much different, aside from a mild recovery. Main sources of worry remain. The World Bank lists these as including “low oil prices, falling public investment due to weak government revenues, constrained private investment due to firm failures, and subdued foreign investor confidence”. Additionally, the Bank thinks that “private consumption prospects will be weighed down by lost incomes and higher precautionary saving among nonpoor households, as well as lower remittances and the depletion of savings among poor and unemployed households amid inadequate social safety nets”.
What are we to do?
Given how evidently unfit for purpose the Buhari administration’s pivot to dirigiste policies have been as a solution to our economic ills, an obvious answer is: “Less of what we have done so far!” We will need, therefore, to rein in the government’s bulimia for borrowing, especially through a more conscientious reform of the public service. This will include sitting across the table from labour unions to negotiate the levels of redundancies that will result from a more cost effective public service. But, done properly, it should also see government better able to fund the required payoffs.
How much of the rapid price movement last year was the result of the central bank’s monetisation of the fiscal deficit? And how much the direct consequence of its aggressive financial repression? The jury is likely to be out on these posers for a while yet.
It will mean a recalibration of the central bank’s gunsights. The current blunderbuss approach has monetary policy spread too thinly in pursuit of diverse and often conflicting policy goals, that it has become effete across a broad range of issues. Without doubt, the biggest ball dropped by the central bank last year is the one marked “INFLATION”. How much of the rapid price movement last year was the result of the central bank’s monetisation of the fiscal deficit? And how much the direct consequence of its aggressive financial repression? The jury is likely to be out on these posers for a while yet. But clearly, not just did the central bank abandon its statutory commitment to price stability last year, in those instances when it acknowledged this imperative, its portmanteau of policy responses begged the question.
Stabler prices have the benefit of supporting domestic consumption. They are also important in supporting private sector supply responses. While government will have to show more commitment to driving the private sector’s growth ― especially by paying more than lip-service to driving down business costs ― it must understand that more stable prices (and the positive real returns on money market instruments by which this goal may be realised) is just as essential to boosting private investment as it is to restoring investor confidence. A more flexible economy, on the other hand, is a boon for employment.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
