By Peter Egwuatu
Managing Director, Investment Banking, United Capital Limited, Mr Babatunde Obaniyi has called for a new policy framework that will lead to the attainment of double-digit economic growth in Nigeria.
Making this call in an interview with Vanguard, Obaniyi stressed that the policy framework adopted in recent time by both fiscal and monetary authorities are too weak to spur the required double growth for Nigeria
In an interview with Vanguard in Lagos, he noted that investors have predominantly complained of multiple exchange rates regime, distortionary quasi-fiscal activities, especially in relation to private sector credit, inadequate fiscal consolidation efforts, the reluctance to take the necessary reforms to end the 3-fold subsidy programme on foreign exchange, petrol and power, despite sustained underperformance of government revenue against budget benchmarks, and lack of policy coordination to attract Foreign Direct Investment, FDI flows to critical sectors of the economy.
He said: “Clearly, to drive a double-digit Gross Domestic Product, GDP growth, first, we need both the fiscal and monetary policy authorities to work together to attract the size of investment that will boost production. This will require fiscal authorities to reconsider its current strategy. Rather than go by way of massive fiscal deficit, we can opt for a public partnership arrangement to rein-in government borrowing to drive down the interest rate. A lower interest rate environment will incentivize private sector productivity, especially in relation to funding from the debt market. The more pressing concern for Nigeria’s fiscal operation remains the fact that our debt is growing faster than our revenue which is building a hole in the country’s future as most of the debt is used to finance recurrent expenses rather than the much-needed capital goods.”
Continuing, he said: “After years of over-dependence on oil revenue and sustained underperformance of the non-oil revenue component, the economy is in a difficult position. This is complicated by a faster increment in the cost of debt servicing, projected at N2.2 trillion in 2019 compared to capital expenditure of N1.8 trillion. “Accordingly, Nigeria needs to find a way to boost revenue for the purpose of funding infrastructure and debt.
Hence, a quick fix to the revenue conundrum is for Nigeria to remove the subsidy on fuel and to harmonize the exchange rate in the official and I&E window. If we do this, government revenue will surge by more than 30 per cent, the clarity of the exchange rate regime will also boost FDI.
“While recent effort to mobilize tax revenue must be sustained, we must choose between running an efficient system of government which allows resources to be allocated efficiently through the private sector or continue with the present-day system which is clearly unsustainable.
“For the monetary policy authorities, we recommend an inflation targeting regime, which predominantly targets an inflation rate between 7%-9% for sustainable GDP growth, rather than a fixation on exchange rate stability. While, intervention in the Foreign Exchange, FX market may be required, some level of flexibility around the management is needed to keep our export competitive. At some point, the policy rate such as Monetary Policy Rate, MPR (at 13.5%) and Cash Reserve Ratio, CRR (at 22.5%) must be lowered to spur growth at double-digit levels. Otherwise, the best we will be able to attract will remain the ‘carry traders’ who are here for the sweet return on treasury bills.”