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Fiscal, Monetary Policy Mix And The Success Of ERGP




Airline operators in the country have kicked against the nation’s Bilateral Air Service Agreements (BASA), lamenting that some African countries and others across the world are frustrating Nigerian airlines in reciprocating such agreement. In this piece, ANTHONY AWUNOR looks at the issues and how it is currently affecting indigenous airlines in the country.


igeria sets out on ambitious structural economic changes with the recent launch of the four-year economic blueprint, the Economic Recovery and Growth Plan (ERGP). OLUSHOLA BELLO reports that the success of the new national economic development plan depends on the harmony between the often conflicting fiscal and monetary policies.
The recent launch of the Economic Recovery and Growth Plan (ERGP) 2017-2020 by President Muhammadu Buhari rekindled the burning desire of the Nigerian populace for a sustainable development. Coordinated by the Ministry of Budget and National Planning, the ERGP contained 60 critical initiatives and is expected to get the job done by helping Nigeria out of the recession and reposition it on the path of growth.
A four-year medium term plan covering 2017 to 2020, the ERGP was developed mainly for the purpose of restoring economic growth while leveraging the ingenuity and resilience of the Nigerian people as the nation’s most priceless assets. It is also articulated with the understanding that the role of government in the 21st century must evolve from that of being an omnibus provider of citizens’ needs into a force for eliminating the bottlenecks that impede innovation and market-based solutions.
The plan also recognises the need to leverage science, technology and innovation (STI) and build a knowledge-based economy. The ERGP is also consistent with the aspirations of the Sustainable Development Goals (SDGs) given that the initiatives address its three dimensions of economic, social and environmental sustainability issues.
A background of failed promises
No doubt, Nigeria has the potential to become a major player in the global economy by virtue of its human and natural resource endowments. The world’s most populous black nation, Africa’s largest market in terms of population, favourable weather conditions and several national resources including, crude oil, Nigeria has severally been touted as an emerging global economy. However, this potential has remained relatively untapped over the years.
After a shift from agriculture to crude oil and gas in the late 1960s, Nigeria’s growth has continued to be driven by consumption and high oil prices. Previous economic policies left the country ill-prepared for the recent collapse of crude oil prices and production. The structure of the economy remains highly import dependent, consumption driven and undiversified. Oil accounts for more than 95 per cent of exports and foreign exchange earnings while the manufacturing sector accounts for less than one per cent of total exports.
The Buhari administration, which rode to power on the back of a change campaign, recognizes that the economy is likely to remain on a path of steady and steep decline if nothing is done to change the trajectory. It is in this context that since inception in May 2015, government has made several efforts aimed at tackling these challenges and changing the national economic trajectory in a fundamental way.
The earliest action was the prioritisation of three policy goals: tackling corruption, improving security and re-building the economy. Consequently, the Strategic Implementation Plan (SIP) for the 2016 Budget of Change was developed as a short-term intervention for this purpose. Visible successes and achievements have been recorded. However, it is recognised that more needs to be done to propel the country towards sustainable accelerated development.

What is different now?
While many pundits remain sceptical, the government has said the ERGP differs from previous plans in several ways. First, focused implementation is at the core of the delivery strategy of the plan over the next four years. More than ever before, there is a strong political determination, commitment and will at the highest level. Whilst all the ministries, department and agencies (MDAs) will have their different roles in implementing the plan, a delivery unit is being established in the Presidency to drive the implementation of key ERGP priorities.The Ministry of Budget and National Planning will coordinate plan-implementation and for this purpose, will, amongst other things, build up its capability for robust monitoring and evaluation.
Also, the government is expected to drive fiscal stimulus through a package of spending to stimulate private consumption and investments by businesses as this will also include dedicating at least 30 per cent of federal budget spending to capital expenditure. Implementing this stimulus will require enhancing the revenue base, including restoring oil production and accelerating non-oil revenue generation; consolidating and optimizing expenditure; improving debt management; and improving policy coordination.
In addition, there are on-going initiatives to increase revenue via privatisation of public enterprises and assets as well as tax review initiatives aimed at expanding the tax to gross domestic product (GDP) ratio. Both of these initiatives when completed will increase revenue and consequently reduce the financing deficit over the Plan period. Monetary stability will be promoted by curbing inflation, reducing domestic interest rates, strengthening the financial system and improved implementation of a flexible foreign exchange rate regime to support growth. Finally, the external balance will be tackled through expenditure switching policies to promote exports, support local production and reduce reliance on imported goods.

Ambitious targets
The key targets of the ERGP have cut out the jobs for government. The ERGP envisaged a real GDP growth of 2.19 per cent in 2017 after a contraction of 1.54 per cent in 2016. The real GDP growth is expected to double to 4.80 per cent in 2018, slow down to 4.50 per cent in 2019 and surged to 7.0 per cent in 2020. The non-oil sector is particularly expected to recover from decline of -0.07 per cent in 2016 to modest growth of 0.20 per cent in 2017 and subsequently pick up strongly to 4.83 per cent, 4.52 per cent and 7.28 per cent in 2018, 2019 and 2020 respectively.
Agriculture, the largest sector of the economy, is projected to grow from 4.69 per cent in 2016 to 5.03 per cent in 2017 and steadily to 7.04 per cent, 7.23 per cent and 8.37 per cent in 2018, 2019 and 2020, respectively. Most experts have commended the government for the plan but there is general note of caution on the implementation of the plan, especially in the area of effective coordination of fiscal and monetary policies as the success of the ERGP depends on intra and inter-sectoral cooperation.
Managing director, Cowry Asset Management Limited, Johnson Chukwu, lauded government for the bold step to launch a roadmap in the first place, although long expected. He also said the content is showing that the country’s leadership can dream of a better thing, if not for the country as a whole, but for themselves, whether realisable or not.
He, however, warned that the plan was too ambitious, given our capability at the present, with the figures being mostly unrealistic. “One of which is the Gross Domestic Product’s growth numbers. These projections need to be broken down further.”
Also, President, Nigeria Employers Consultative Association (NECA), Mr Larry Ettah, who spoke on behalf of members of the association on the state of the Nigerian economy in Lagos, commended the federal government on the release of the ERGP.
He said although this step should have come two years earlier, the programme should be implemented forthwith.
Ettah said “We appreciate the fact that the ERGP was produced through a process that involved consultations with the private sector and hope such consultative posture would be sustained. We share in the broad principles behind the plan, tackling constraints to growth, particularly fuel, power, unfriendly regulations, and foreign currency; leveraging the power of the private sector, promoting national cohesion and social inclusion and allowing markets to work.
“We urge government to ensure a focused, concerted and effective implementation of all the actions and initiatives contained in the ERGP so that the benefits may quickly accrue to the economy, businesses and citizens, and the nation as a whole.”
Chairman, United Bank for Africa (UBA) Plc, Mr Tony Elumelu, has commended the federal government for their concerted reforms toward reflating the Nigerian economy. He noted that recent initiatives of the federal government are restoring investor confidence and stimulating productive activities, needed for economic recovery.
“I would like to commend the Federal Government of Nigeria and President Muhammadu Buhari on the recent launch of the Economic Recovery and Growth Plan. It is laudable that the government widely consulted with the private sector in putting together this economic plan, which I believe should help address the immediate critical need of the Nigerian economy.
“As a stakeholder in Nigeria, I enjoin everyone to support these lofty agenda of the government, which hopefully should see the economy return to its deserved high growth path. No doubt, the fundamentals of the Nigerian economy remains strong and we all must work with the government to harness the potentials, not only for today but also for the benefit of our future generations,” Elumelu said.
Much depends on fiscal, monetary coordination Chairman, Sterling Bank Plc, Asue Ighodalo, said the outlook for the Nigerian economy remains that of cautious optimism, though the expectations are generally that the benefits of the various economic restructuring initiatives will begin to stimulate economic recovery. Citing the government foreign exchange issuance, Eurobond, under the Ministry of Finance and the improvement in domestic foreign exchange market, Ighodalo called for continuing coordination of fiscal and monetary policies, saying, “ We are confident that the continuing improvement in the coordination of fiscal and monetary policy initiatives will expedite our economic recovery.”
Chief operating officer, Invest data Limited, Ambrose Omordion, pointed out that effective coordination of monetary and fiscal policies makes it easier for policy makers to achieve their stated policy objectives in efficient manners, saying this will also take the economy out of its present state.
According to him, there is need for government and its agencies to re-assess their policies. Government should introduce new economic policies and incentives in form of stimulus packages or bailouts for some critical sectors to revive the economy. He noted that many companies were closing down due to the current economic challenges thereby leading to high unemployment rate.
An analyst and stockbroker, Mr Tunde Oyediran said that both monetary and fiscal policies are twin tools used by government to regulate the performance of an economy. He pointed out that the interplay of fiscal and monetary policies will affect economic performance.
According to him, monetary policies as it relates to inflation, foreign exchange and interest rates, among others, must always be supported with robust government spending in capital projects and prompt payments of workers’ salaries, focused borrowings coupled with appropriate taxation stimulus for local firms and multinationals, which altogether will translate to improved economic performance.
On ways to effectively coordinate fiscal and monetary policies, Oyediran commended the institution of the multi-sectoral Delivery Unit but noted that the National Economic Team as constituted under the Vice President must meet regularly, like Monetary Policy Committee of the Central Bank of Nigeria, to harmonise policies and smoothen the rough edges as the implementation of the ERGP progresses.
Chairman, Union Bank of Nigeria (UBN) Plc, Cyril Odu noted the importance of effective coordination of fiscal and monetary activities pointing out that a delay in the signing and implementation of the budget, widening disparity between the official and parallel exchange market rates and rising inflation had been signals of the possible difficulties in the Nigerian economy in the previous year.
As the ERGP looks to delivering structural economic changes and overall stable and progressing macroeconomic environment by 2020, the imperative of effective coordination of policies and continuing consultation of all stakeholders cannot be over-emphasised. Therefore, all hands must be on deck from the small and medium enterprises, organised private sector, the public sector and individuals to return Nigeria’s economy to growth path through innovation and market-based solutions.