Tuesday, September 20, 2016
Rescuing Nigeria Out Of Recession
The Federal Government, last week, announced a number of stimulus packages to steer the economy back to growth. To complement government’s effort, experts offer tips on how to deal with the nauseating situation. ABDULWAHAB ISA reports
Top officers of government at the centre are nervous and working round the clock, consulting stakeholders on best ways to lift the economy from the present mess. The rate of engagement and consultations has been stepped up recently, following official confirmation by the National Bureau of Statistics (NBS), which in its second quarter 2016 economy report, put the country’s Gross Domestic Product (GDP) at -2.06 per cent.
The NBS report aligned with an earlier one released by the International Monetary Fund (IMF) revealing that Nigeria’s economy was posting negative growth. According to NBS, the nation’s GDP fell by 1.70 per cent points from the growth rate of –0.36 per cent recorded in the preceding quarter, and also lowered by 4.41 per cent points from the growth rate of 2.35 per cent recorded in the corresponding quarter of 2015.
From the foregoing reports by NBS and IMF respectively, the Nigerian economy is in full recession. Government officials and private sector players have been proffering solutions to get the economy out of recession. Suggestions have been made to t government on the need to re-compose the Economic Management Team (EMT) to achieve efficient and productive economy.
Admitting recession
In the past, there were instances the government referred to published report on economy as bias and not reflective of the actual situation on ground. Certainly, government never faulted the recent one on GDP decline and previous report by the IMF. It concurred with the findings of NBS, admitting that the economy was in silent mode. However, it gave assurance that the experience would be short lived.
Speaking last week in Abuja, Minister of Finance, Mrs. Kemi Adeosun, said the current economic recession plaguing the nation would not be a prolonged one. She said the government had put up a strategic plan to halt the recession and return the economy to productive path.
She said, “We have a strategic plan that will take us out of the recession we have found ourselves in; we want to make sure the recession is as short as possible because we do not want a prolonged recession.
From what we are looking at, we do not think that it will be a prolonged recession; we think that some of the initiatives we are working on will now begin to bear fruits. We are on course and are confident that the plan we have put together will work and put the economy back on track. It is a long term plan that will reposition the economy so that we do not go into this boom and burst circles driven by the oil price. The economy has to be more resilient so that we do not find ourselves back where we are now.’’
Though the minister was dodgy, on when the recession would end, she said the fact that there were measures in place was enough indication that the end of the recession had begun and that Nigeria would come out stronger.
Reflating economy
Based on the expectation the government, last week, announced new measures it would be putting in place to spur major economic activities in the economy. Unveiling the details on behalf of the government, Adeosun announced that an additional N350 billion earmarked for capital projects in the 2016 budget would be released any moment. The payment of N5,000 to the vulnerable poor and the feeding scheme for primary school pupils in public schools will follow this month. The release of the additional N350 billion will bring the total capital releases made by the government to N760 billion out of N1.8 trillion capital component in the 2016 budget.
“What the government wants to do is to step in and begin to spend and push more money into the economy and then get things moving again. Since the budget was passed in May, we have released cash-backed fully with N420 billion being capital releases. As we speak now, we are about releasing another N350 billion. Of the sectors we spent the money on, of course, the largest had been power, works and housing.
Quite a lot has gone to defence, because we need to rebuild the credibility of our army to continue in their efforts in the new phase; also interior and transport,” she said. “There will also be the funding of about N60 billion in the social intervention programme and that’s very important in terms of putting money into people’s pockets. Those are the programmes that we really cash-backed.
The N5,000 to some of the poorest and most vulnerable, the home school feeding programme, which is very important. That will also generate economic activities in a lot of our local governments with women and maybe men cooking for the children. The graduates that will be going into primary schools as teachers so they will begin to get salaries/ stipends at the end of the month,” said the minister. The government also gave assurance that the external borrowing it hopes to source from planned $1 billion Eurobond, would be deployed in key capital projects . Adeosun said: “We are raising money.
The Eurobonds capital raising is on. We are about to appoint our advisers. We are raising additional $1billion. Two weeks ago, we approved the external borrowing plan. That was very important because we said we would be borrowing the cheapest money first.
We have approved that plan from the World Bank, the ADfB, with interest rates as low as 1.5 per cent with tenor as long as 40 years to intervene in some specific areas, which include agriculture, education, health, rebuilding of the North East and railway projects, which are very key to what we are doing.” She also said the ministry was working with the Nigerian National Petroleum Corporation (NNPC) to get out of the Joint Venture cash call as this was affecting funds available for government projects.
“This month, for example, from the Federation Accounts Allocation Committee, we only got N41 bn from oil. We had to use N110 bn to fund cash calls. If we had that money, we could have channelled it into the economy. We are working with the Ministry of Petroleum Resources and the NNPC to get out of the cash calls. That is the long term plan; to allow those joint venture to borrow money that they need, rather than taking money from the Federation Account and that will improve the money in circulation,” She said.
Experts’ concern
Experts across divides – from academia to technocrats – have reacted to government’s strategic rescue plan announced last week by the finance minister. Speaking with New Telegraph, professor of Economics and former Special Adviser on economic matters to former Vice- President Atiku Abubakar, Mike Kwanashe, said government’s strategic plan was in order for a country passing through a recession.
“Don’t forget that recession is a policy issue and the step government has announced to reflate the economy is a good one. It’s a standard practice usually deployed to rescue an economy experiencing recession.
The authority rises to the challenge by pumping money into the system, to stimulate economic activities. But the sequence has to be matched, taking cognisance of aggregate demand and aggregate spending. Pumping money will spur more activities in the economy,” he said. The former head, Economics department at Ahmadu Bello University said that to rescue an economyin recess, it requires a combination of short and long term measures.
He cautioned the government to be wary of channeling its intervention funds on imports. “Once you have economy that is not producing like ours, the money pumped into economy may exit to support import without achieving its long term impact. The best way is to use such funds to stimulate local production, but again this depends on utilisation of the allocation by the MDAs.
“If MDAs utilise the allocation to prop up local production, which leaves lasting positive impact, the economy will recover; but if the funds were used to import goods, it will not solve the situation,” he said. In his response, Dr. Uche Uwaleke, Head of Banking & Finance Department, Nassarawa State University, said the planned release of N350 billion and other measures were in order. “There is no doubt that the injection of N350 billion will boost aggregate demand and help the process of restarting growth of the Nigerian economy.
However, for desired impact to be felt, such money should be channeled more to employment generating activities such as agriculture, infrastructure and solid minerals. Equally vital is ensuring preference for local contractors over foreign firms in the award of contracts.
The major challenge I see with the conditional cash transfer scheme is identifying genuine beneficiaries in a country that lacks the requisite database of the core poor and vulnerable people.
This seeming loophole creates opportunities for corruption. So, in my view, the scheme should not be implemented in a hurry.
Conclusion
Instructively, the ball is in government’s court. With the instruments (monetary and fiscal) for controlling the economy effectively put to proper coordination, the current recession ought not to last longer. To declare that Nigerians are hard hit and suffocating from hardship is understating the obvious
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