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2017 GDP report: Matters arising

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President Buhari with R-L: Speaker House of Representatives Rt. Hon. Yakubu Dogara, Senate President Bukola Saraki, Vice President Yemi Osinbajo and Minister of Budget & National Planning Senator Udoma Udo Udoma, at the formal Launch of the Nigeria Economic Recovery and Growth Plan (ERGP) at the State House | 5th April 2017

In 2017 Nigeria’s Gross Domestic Product achieved real growth rate of 0.83 per cent according to the National Bureau of Statistics. The non-oil and oil sectors grew at 0.47 per cent and 4.79 per cent and contributed 91.32 per cent and 8.68 percent respectively to the economy. At 2010 basic price, the 2017 GDP stood at N69.2 trillion and so fell by 0.86 per cent short of the N69.8 trillion recorded in 2015 before the onset of the five consecutive quarters of recession from January 2016 through March 2017, a development which resulted in GDP dropping to N68.7 trillion in 2016. With the population growing by at least 2.9 per cent annually, real GDP per capita has declined steadily since 2015 thus leaving the generality of the people poorer.

The Buhari administration pledged to lift the country’s economic fortunes with the 2017-2020 Economic Recovery and Growth Plan (ERGP). Based on legacy fiscal and monetary policies, the ERGP projected GDP growth rates of 2.19 per cent for 2017 (the rate was after takeoff of the plan reduced to 1.5 per cent), 3.5 per cent for 2018, 4.5 per cent for 2019 and 7.0 per cent for 2020. Therefore, the recorded 2017 GDP growth rate of 0.83 per cent is a far cry from the country’s need. On the other hand, seeking to deflect any blame for the disappointing outcome of the non-conventional and injurious legacy fiscal and monetary policies to which they had long lent their support, the double-dealing Bretton Woods institutions feigned a parting of ways with government, pointed to the looming serial flat GDP growth and continuing decline in per capita GDP and recommended adoption of the long-avoided antidote to the economic malaise, namely a single market-determined naira exchange rate. Accordingly, the IMF, in its reports on the 2017 and 2018 Article IV Consultations, hyped up “under unchanged policies” to estimate real GDP growth of 0.8 per cent for 2017, 2.1 per cent for 2018 and 1.9 percent for 2019. Expectedly the 2017 forecast growth rate was dead on target.

But do not be fooled: the ERGP and IMF growth projections are two sides of the same coin and both fail to meet the double-digit growth rates over an extended period that would see the economy out of the backwater which has formed over the years. In the 2018 report, quite shamelessly, the IMF even betrayed its double-dealing nature by subtly indicating that its accomplices that are in charge of the country’s fiscal and monetary policies were expected to ignore the noted antidotal recommendations and proceed to (in IMF words) “muddle through” regardless. The 2018 report also disturbingly revealed public and private outstanding external debts of US$46.1 billion for 2016 and $56.5 billion for 2017, which government has not acknowledged publicly. Did the Buhari administration contract or guarantee any debts to supplement those captured in DMO data at the price of the 2016/17 economic recession and the 2017 GDP growth rate of 0.83 per cent? It is unacceptable.

The economy’s undoing inheres in excessive fiscal deficits incurred contrary to provisions of the CBN Act and the yearly Appropriation Act with resultant unrepresentative or non-equilibrium naira exchange rate. Take the 2017 fiscal deficit level for example. There is, quite deliberately, no official fiscal deficit figure yet. However, owing to the government’s unconventional fiscal and monetary policies, sound analysis deduces uncalled-for additional fiscal deficit inflicted on the economy as follows: (a) The 2017 total of 13% Derivation Fund of FAAC dollar allocations evidences that CBN substituted N3.4 trillion (apex bank) funds for withheld $11.2 billion oil accruals. That unconventional (relative to international best practice) action represents unapproved additional fiscal deficit of 3.0 per cent of GDP. (Incidentally, this substituted deficit is the source of the sterilised (unutilised) domestic debt that currently drains away 50-60 per cent of federal revenue as service cost, and which similarly hinders GDP growth). (b) Non-oil revenue accruals to the Treasury Single Account amounted to between N5.2 trillion and N7.0 trillion in 2017. Inappropriately, CBN held on to the TSA funds and lent sums in like magnitude to government for spending. This represents another form of substituted deficit which contributes further fiscal deficit of 6.1 per cent of GDP. (c) There was ultra vires 15 per cent devaluation of the naira from the Appropriation Act rate of N305/$1 to N360/$1 (it was even N550/$1 for a while) among other multiple exchange rates.

The noted additional cumulative fiscal deficit of over 10 per cent of GDP compounded by illegal devaluation of the naira accounted for the persistent excess liquidity (which spawned the fake national domestic debt) and inflation ranging from 15.37 per cent to 18.72 per cent in 2017. The high level of inflation has routinely been cited as justification for fixing monetary policy rates that incorporate CBN standing lending facility rate of 16 per cent. Needless to state, the associated high lending rates (the maximum rates top 30 per cent) are unfriendly to productive economic activities just as they jeopardise GDP growth. For example, amid the high lending rates, World Bank data showed that domestic credit provided by the financial sector as a proportion of GDP in 2014 was 21.8 per cent. The comparable CBN indicator, banks’ credit to the domestic economy, was N20.4 trillion or 17.9 per cent of GDP as at end-December 2017. Whereas this indicator currently exceeds 100 per cent of GDP in Malaysia or Singapore, private depositors fund in Nigerian banks would sustain such level of bank credit capacity or utilisation under competitive interest rates that would be associated with equilibrium naira exchange rate. Note that should banks’ credit to the domestic economy rise to 100 per cent of GDP or above, bank credit-financed private investments in the real and productive sector would grow to 15 or more times the size of the federal budget and thereby raise national productivity and boost national output (GDP) multifold with corresponding increase in tax revenue for government business.

Now, equilibrium naira exchange rate that grounds macroeconomic stability and drives throbbing economic productivity should be determined under the managed float system in an open single forex market that pits the country’s total supply of public and private foreign exchange earnings against the country’s need-based demand for forex subject to the constraint of the optimal money supply volume for the economy. Ever since oil receipts began to accrue directly to the public kitty, the government revenue basket has been naira-scarce. And since 1974, oil receipts have on paper accounted for over 50 per cent of the budget. Government needs naira funds to settle the bulk of its commitments. Hence, given the assured pent-up heavy demand by government for naira in a single forex market, it is self-evident that the ever-depreciating multiple naira exchange rates being ascribed to illegal multiple currency markets where forex demand purportedly surpasses naira demand are sham results being stage-managed by accomplices of the IMF/WB and their co-travellers, the Nigerian Economic Summit Group for the purpose of relegating the naira, diverting forex to interlopers, keeping the economy weak and constricting GDP growth.

It is imperative to run the economy and implement the national budget strictly in line with the CBN Act and the annual Appropriation Act as outlined in our editorial of October 23, 2017. Only then shall the economy at the very long last begin to experience rapid inclusive growth and eventually be salvaged.


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