Towards actualising double digit GDP growth rate

The Budget Office of the Federation (BOF) and the Central Bank of Nigeria present IMF World/ Regional Economic Outlook GDP growth estimates and projections for Nigeria as if they arose from exogenous growth-limiting factors. That practice obtains in the BOF’s three-year rolling Medium Term Expenditure Framework and Fiscal Strategy Paper (MTEF/FSP) and also in the CBN’s Monetary Policy Committee (MPC) bimonthly communiques. However, the low IMF growth figures actually reflect the prevailing deteriorating production environment occasioned by long-running implementation by BOF and CBN of what both term as homegrown heterodox fiscal and monetary policies and which the IMF dubs “persisting structural and policy challenges”.

The non-conventional policies have been fashioned as a means of raising public hopes of great economic expectations but which ultimately become unrealizable. For instance, the elaborate promises and policies and GDP growth projections ranging from 2.19 percent to 7.00 percent contained in the 140-page Economic Recovery and Growth Plan (ERGP 2017-20) document were not only steadily adjusted downward in the relevant annual budgets but also constantly scaled down in the MPC communiqués until the low IMF growth rates were embraced as the official level in the end.

Among the group of Emerging Market and Developing Economies (EMDEs), the IMF GDP growth projections for Nigeria, China, and India for 2019 (as of July) were 2.1 percent, 6.2 percent, and 7.0 percent respectively. As Nigeria’s GDP growth rate lags behind the population growth rate, GDP per capita steadily declines over time. And beginning in May 2018, Nigeria became the poverty capital of the world with more Nigerians daily joining the ranks of people living in extreme poverty than in any other country. It is ironic that despite the promises and robust projections in the ERGP, Nigerians on average were better off at the takeoff of the plan than in the subsequent years. Notwithstanding their double-dealing nature, the Bretton Woods institutions have in recent years openly recommended policy reforms with the IMF signifying the unification of the naira exchange rate in order to enhance GDP growth and reduce extreme poverty.

As a matter of fact, given the country’s current low GDP base and bountiful resources, the implementation of conventional and global best practice single forex market (SFM) system to determine a unified naira exchange rate will bring in its train the enabling macroeconomic conditions of low inflation, low and internationally competitive interest rates and also stable exchange rate necessary for diversified economic activities to thrive and facilitate attainment of double-digit GDP growth rate in the near to medium term. That would make the Nigerian economy the star performer among the EMDEs. It is instructive that upon his appointment for the second term, CBN Governor Godwin Emefiele has acknowledged that double-digit GDP growth rate is realisable.

But let it be promptly pointed out that the road to fast GDP growth is not solely dependent on the implementation of the budgets of the tiers of government. The hyped-up attention being given to government budgets merely misleads the gullible public. Activities of all the tiers of government in the main fall into the Public Administration activity sector of the GDP. This sector’s real contribution to the latest available full-year 2018 GDP, for instance, stood at only 2.19 percent while other activity sectors accounted for the balance of 97.81 percent. Therefore, the public concern should focus on ensuring the FG properly carries out its exclusive responsibility for managing the naira. The national currency is the lifeblood of the economy which flows through the veins of all activity sectors and so its sound management, directly and indirectly, enhances the extent to which the individual sectors generate and propel the growth of the economy.

Now, how has the FG fared in properly managing the naira? Upon the demise of the Bretton Woods system of fixed exchange rates in 1971, it was left to individual countries to manage their national currencies. The military regime at the time so coveted the oil proceeds accruing to the treasury that the military (political) leadership firmly denied the constitutional beneficiaries of the Federation Account oil proceeds direct access to the foreign exchange. Therefore, the CBN was directed to both withhold Federation Account dollar allocations and to substitute fiat printed “naira equivalent” for disbursement to the tiers of government for budgetary spending. That improper step, which persists to date, constitutes the taproot of the homegrown heterodox fiscal and monetary practices (HHFMP) which have congealed into “structural and policy challenges.”

First, the procedure runs afoul of the requirement to conventionally convert forex to the national currency via banks of first resort or deposit money banks with the CBN playing the role of the bankers’ bank and bank of last resort. Second, the procedure makes the dollar a pseudo-national currency thereby undermining the primacy of the legal tender status of the naira duly enshrined under Section 2(b) of the CBN Act.

Third, while naira amounts in the system come in the final analysis from CBN, the manner in which any naira sums enter the system makes the difference between national prosperity and national economic perdition. In terms of section 38 of the CBN Act, what FAAC distributes as “naira equivalent” of withheld FA dollar allocations is supposed to be temporary ways and means advances (WMA) or domestic debt which should be repaid in the very year such advances occur. The adverse effects of the WMA debts cannot be wished away through presidential forbearance even if they are not repaid and do not attract domestic debt service. In subsection 7.2.4 of the 2020-22 MTEF/FSP, the BOF/CBN couch the WMA under “deficit monetisaton and the attendant macroeconomic dislocations”. That is both sweetly revealing and deserving of a little elucidation. This is not the conclusion of the matter.