Using coordinated policy approach to stimulate growth

CBN Governor, Godwin Emefiele

 By Helen Oji

Nigeria is currently grappling with the second recession in five years, a crisis triggered by the coronavirus outbreak.

The crisis calls for fiscal discipline. The country had failed to take advantage of the ‘boom cycles’ of its major resource – crude – to build a stable economy.

Nigeria, like some oil-exporting countries, depends largely on revenue from oil exports to fund its activities.

But the Governor of the Central Bank of Nigeria (CBN) Godwin Emefiele, said it is possible to envision a vibrant economy that is less dependent on crude oil. He recalled a time in the 1960s when “our cities and rural communities were brimming with activities, as industries sprung up in Lagos, Kano, Kaduna, Onitsha and Aba, to mention a few, and rural dwellers supported increased cultivation and exports of cash crops such as cocoa, palm oil and cotton.

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“These activities enabled the creation of jobs for rural and urban dwellers while working to stem rural-urban migration.”

Reliance on crude for revenues began in the 1970s, making the beginning of Nigeria’s major problems. Oil rose from three per cent of our total exports’ earnings in 1960 to over 90 per cent by 1976.

Decades later, oil still constitutes over 80 per cent of export earnings. The country’s dependence on oil exports contributed to the decline of local industries as well as agriculture.

“This reliance on imports contributed significantly to the challenges we now face in our agricultural and manufacturing sectors, but more importantly, it resulted in losses of job opportunities for Nigerians.

“Our craze for imports of everything and anything supported factories, farms and the creation of jobs in other nations while turning our industries into warehouses for these imported goods,” Emefiele said.

These have been the CBN’s message in the last five years. Emefiele emphasised that diversification of the economy and rediscovery of local resources and capacity utilisation remain the way forward

Although the Covid-19 pandemic and associated lockdowns imposed in the early months of the pandemic contributed significantly to the current recession, it is not a valid excuse to avoid confronting the challenge caused by weak fundamentals.

The nation’s economy was distressed long before COVID-19 as demonstrated by the recession of 2016-2017 and the fragile recovery.
The CBN, in its efforts to keep the economy afloat, has dabbled into responsibilities fiscal such as development financing. Many have considered this as overstretching the bank’s developmental role.

Experts said there is a need for the fiscal and monetary authorities to work together to reposition the post-COVID-19 economy for sustainable growth and implement policies that are less dependent on external economies.

Economists have argued that it is important to promote improved fiscal responsibility and strengthen the monetary framework.

Segun Ajibola, a former President, Chartered Institute of Bankers of Nigeria (CIBN) and professor of economics at Babcock University argued that one of the dilemmas of Nigeria is fiscal indiscipline caused by the actions of the political gladiators.

He noted that while the CBN is trying to grow the economy through expansionary policies targeted at increasing capital flows to the real sector, the fiscal authorities, on the other hand, are raising counter-productive taxes.

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Given the loopholes in the fiscal policy, Ajibola noted that all eyes are often on the CBN to provide leadership through monetary management which must be done professionally.

He said: “Most times, the efficiency of the monetary policy is weakened by fiscal interjections.”

Sheriffdeen Tella, a professor of economics at Olabisi Onabanjo University, Ago-Iwoye, said the fiscal policy action has been quite slow which invariably affects the economic performance.

“There is therefore the need for both monetary and fiscal authorities to implement their policies simultaneously. The present problem has to do with the global fall in production and consumption. This has negative implications on all economies,” he said.

He continued: “Fiscal interventions should be in the form of tax holiday and reduction in the current tax regime”.

Delay in taking actions through the bureaucracy as in the case of job creation by local governments has a way of aggravating or worsening the positive effects of the interventions.”