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Reflections on the Economic Outlook for 2018

By Obadiah Mailafia

THE preceding year of 2017 witnessed a gradual recovery from a rather traumatic economic recession. At an annualised growth rate of 0.8% for the preceding, the economy had transited out of negative growth and can be presumed to be on the path of long-term sustained growth.

The forecasts for 2018 vary from that of the conservative IMF of 2.1% to that of the London-based ratings agency, Fitch, at 2.6 percent. Much will depend on how deftly our economic managers handle the most crucial elements of the economy.


There are absolutely no guarantees. Much will depend on how quickly we resolve the remaining issues relating to Budget 2018. We would hope and pray that both the government and the National Assembly do their part to ensure a speedy resolution and passage of the appropriation bill early enough, at the latest, not beyond February.

Equally important is the propitious holding forth of global oil prices, which currently stand at US$60.45 per barrel, the highest since 2014. It is also important that we continue on the quiet diplomacy that kept Niger Delta militants quiet while ensuring that we maintain 2.1 mpd that we had throughout much of 2017.

To ensure that we maintain a stable macro economy and ensure a framework for long-term sustained growth, certain important actions are necessary.

On the monetary side, I would say that there have been some marginal improvements compared to previous years. We are seeing a regime of fewer multiple exchange rates compared to the past. And yet, what we need to do urgently is to merge the rates into one single exchange rate. It makes for more credibility as well as transparency.

Also, interest rates are way too high. We need the MPC to bring down the Monetary Policy Rate, MPR to sustainable levels. For much of 2017, the Monetary Policy Committee, MPC kept the MPR at 14 percent. As the economy recovers to full-throttle, we would expect that the MPR will be eased downwards.

Interest rates matter particularly for SMEs who need affordable credit to build their businesses and generate jobs. The CBN also needs to streamline the numerous intervention funds that have been created. It seems to me that they are getting out of control. Good intentions are not enough.

Rigour in application and monitoring is vital to achieving results on ground. Also, the challenges faced by some of the banks relating to non-performing loans need to be frontally and squarely addressed to safeguard the stability and integrity of our financial system.

On the fiscal side, we would urge rapid finalisation of Budget 2018. Speedy finalisation and implementation of the budget is key to unleashing the kind of spending that will sustain the recovery and get the great Nigerian people back to work. More prudent fiscal responsibility is needed. We are hearing stories about imprudent fiscal spending in a manner that is quite worrisome.

We also need more creative way to enhance the extractive capacity of the state. Both economic and political theory has established that taxation is good for democracy and good for the economy. We should encourage all Nigerians to pay their taxes. Finally, we need more coordination between the fiscal and monetary side. The two seemed to have been singing from different hymn books so far.

If I may use the metaphor of the orchestra, the conductor is the president; the soprano is the Minister of Finance and the pianist is the CBN. The conductor has to be up to his job. The harmony and success of the orchestra depends on the high abilities of the musical conductor. He dictates the pace, the symphony and the outcomes. But the soprano has to do her part – sing at her best pitch in a manner that would wow the crowd and achieve results. But the pianist quietly ensures the harmony, producing a harmony of enchantment. We need the entire team to do their part, together and in harmony, to ensure positive results.

Equally important is the need to wrestle down the monster of inflation. Although inflation has come down from a high of 19% to its current 15.1%, we still have the challenge of food inflation still hovers around 20 percent. We did some econometric studies some years ago which showed that food accounts for 62% of the determinants of inflation. So much will depend on the extent of food availability and food security.

Much of the food consumed in this country is grown in the Middle Belt. It is a region, sadly, that is currently overwhelmed by a genocidal warfare by well-armed Fulani militias. If their activities go unchecked, we may sooner or later face an agrarian crisis in our hands and, of course, a spiral of high inflation.

Another element is the exchange rate. We are hoping the naira will remain as stable as it is. Another challenge is imprudent spending. If we engage in a binge of uncontrolled spending, it could drive up prices. Sorting out the PMS issue is vital. Most Nigerians celebrated Christmas and New Year with petrol scarcity. This has a tendency to drive up prices, given that the cost of transportation has direct bearing on other prices.

Also, in a political-electoral cycle, the penchant of politicians is to outspend each other to peddle influence and engage in political horse-trading. This is true not only of Nigeria, it is true of all countries across the world. This also means that both fiscal and monetary authorities have to work together in tandem to rein-in these spending excesses so that prices remain stable.

Finally, much will depend on the CBN which is the guardian of monetary and financial prudence. Even as I write, there is uncertainty whether the MPC would meet this month end, given that the National Assembly is yet to approve the appointments of the newly appointed members of the CBN Board and its new MPC members. It seems that the present team do not form a quorum, without which monetary policy decisions would be illegal. I urge the concerned authorities to expedite action so we have an MPC that goes to work in the interest of the Nigerian people.

Also, I have always worried if the ongoing regime of forex intervention by the apex bank is sustainable. I would insist that what we need is a more transparent forex market regime. Let’s clean up our act and make that market more transparent. We should also valorise the naira as our legal tender currency and symbol of our national pride and honour.

I do not believe we should run a monetary system merely in the interest of bankers and international financial markets. Rather, we must put the well-being of Nigerians at the heart of it, while of course, being sensitive to other domestic and foreign stakeholders. I have no ideological predilection for intervention or flotation.

Let’s look at all the parameters openly, rigorously and without sentiments. Let market fundamentals shape what we do with the exchange rate, but also being aware of the dictum by the economic historian Karl Polanyi, that markets and institutions are shaped by people and interests. Pragmatism is the essence of wisdom in these matters.

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