Reflate the economy, create jobs

WHAT should advisedly be the thrust of fiscal policy as we await the full take-off of President Buhari’s administration to complement monetary policy in view of the existential challenges that currently confront the nation? My answer is that we should go for a policy that would attempt to deliberately reflate the economy and risk an increase in price levels as we do so.

Monetary policy should be similarly deliberately targeted at growing the economy as it is currently the case.

We recommend an expansionary fiscal policy that would be targeted at achieving rapid economic growth which would result in the creation of employment opportunities to get the idle and under-employed population of the country back to work, boost purchasing power and hopefully catalyse a massive enough momentum which ultimately would allow us to spend our way out of the inflationary pressure that is bound to result.

The President in a paper he presented at the United States Institute for Peace (USIP) declared: ‘We have no illusions about our challenges. …As we ramp up our efforts to defeat Boko Haram, we know that winning this battle sustainably will require that we expand economic opportunities and create jobs for our teeming young population.’ We do not have the diversified economic base to replicate the American feat in this regard and some have even questioned where the funding is going to come from. The Government could of course borrow; nation states in such predicaments have other known and recognised sources for finding such monies!

The example of Barack Obama is not easy to replicate. When he assumed office in 2008 the American economy was in similar dire straits. When the bubble bursts on the sub-prime mortgage market resulting in widespread loan defaults followed with massive job losses; mortgage firms went bankrupt and the budget deficit ballooned.

The rest of the world literally went into recession but President Back Obama doggedly stuck to what he now characterises as ‘middle class economics,’ adopted expansionary fiscal policy and bailed out companies that were moribund particularly car manufacturing companies; in the process saving potential massive job losses. That President Obama did not encounter a major opposition in the renewal of his tenure is proof positive that his administration has been a success.

On the Central Bank of Nigeria’s decision to delist some 41 items from access to official foreign exchange funding, the Lagos Chamber of Commerce and Industry (LCCI) argues that such a step is constraining of the economic space and might result in some company closures as some of the excluded items are intermediate products for some of its membership.

On an NTA Good Morning Nigeria programme anchored from Abuja, a manufacturer of tomato puree regaled us with how following the announcement of this policy his operations suddenly gained traction resulting in him having to recall One Thousand workers he had previously laid off because of lack of demand while he was full of effusive praise for the President and the Governor of the Central Bank for this laudable policy. And the explanations which the authorities at the Central Bank gave in justification of this measure is that in addition to the fact that reserves are dwindling and therefore there was no option but to attempt some demand management, the extant free for all regime only resulted in the exportation of badly needed jobs.

LCCI had engaged with the Central Bank to share perspectives on this matter and despite this development the LCCI would want the CBN to toe its recommended line of action of policy reversal even if the organization is alone amongst the other organised bodies such as Manufacturers’ Association of Nigeria and the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture (NACCIMA) to be championing this course of action.

Attempting to reflate the economy would result in allowing the budget deficit to go beyond the current target of 3% of GDP specified as a limit in the Fiscal Responsibility Act even if this thrust would necessitate a review of the law in this regard. For comparison, in Ghana, the deficit this year is at the level of 7.3 per cent of GDP up from an initial estimate of 6.5 per cent as Ghanaians attempt to deliberately stimulate the growth of their economy. The deficit in budget 2015 is of the order of 1.4 per cent of Nigeria’s rebased GDP. Reflating the economy would also entail that we deliberately avoid any measure that would result in the layoff of workers.

We should avoid throwing more people into the job market. We should expand the taxation net to capture those who are currently not paying any tax and also make the rich amongst us to contribute a bit more through the levying of luxury tax, to bridge the yawning inequality gap in the country. The volume of tax revenue to GDP indicated that it is 7.8 per cent for Nigeria while the same statistics for France, UK, U.S. and Tanzania stand at; 45, 39, 27 and 12 per cent respectively.

We might not have any option but to in due course terminate the subsidy regime. As at last count the subsidy amount of about One Trillion Naira a year trumps the budget provision for capital expenditure for 2015 and most certainly this is not sustainable. The subsidy regime in this country is hallmarked with all manner of sleazy including unearned payments. Who are the beneficiaries of this misallocation of resources? Studies show that only about 8 per cent of the subsidy payments reach the poorest 20 per cent of the population. It is not realistic to attract private capital for the construction of refineries under a regulated regime.

• Dr. Chizea wrote from Lagos.