Stabilising fragile economy through desperate fiscal adjustments

Since February this year, the country’s economy, although still held hostage by low economic activities- recession, has been clawing back some gains owing to aggressive policy reversals. First is the easing inflation, which persistently lost strength up to April, while the May data is around the corner.

The easing inflation rode on the back of foreign exchange reforms, according to some analysts, which has continued to evolve since February, starting from huge market interventions, retail segment’s “devaluation”, to opening of new windows targeted at the critical segments that have impact on the general price mechanism.

Of course, since then, exchange rate has risen in favour of the naira from an all-time low of N520/$1 to near rate convergence at N364/$ recently. In fact, there is a semblance of economic tranquility, the type that has not been experienced in more than eight months.

“You cannot compare the size of Nigeria with these countries, so at first look, you cannot criticise the country. Per capita income is impacted by numbers, but that does not mean we should relax. In fact, we can grow more than these countries without oil.“I think the economic blueprint has some projections about non-oil resource, which these countries are growing with. What we need now is putting the plans into action. The figures present a challenge for the country, but let us see how far we can go,” he said.
 
For the Chief Executive Officer, Cowry Asset Management Limited, Johnson Chukwu, the rising growth trend of non-resource countries in Africa has been ongoing and persistent, while the so-called big economies are faltering.Apart from their small sizes, these countries have configured their macro-economy with consistency, such that they do not think about natural resources and that is the edge over Nigeria and others.

“So, two-thirds of all tax revenue is going into interest payment, illustrating the need to raise tax revenue. That would allow the government to implement the social and growth-friendly policies that are part of the objectives of the ERGP.”While the economy continues to enjoy a favourable outcome induced by the stabilising foreign exchange market, sentiments, real and/or imagined persist that CBN’s next approach towards the management of the market remains a downside risk, as it cannot be predicted.
 
Nigeria also recorded growth in the latest trade report by the National Bureau of Statistics, which showed that merchandise for the first quarter (Q1) of 2017 rose by 0.11 per cent to close at N5.29 trillion.

Indeed, while the exports section revealed that Nigeria mainly sold mineral products, which accounted for N2.86 trillion or 95.2 per cent of the total export value, “Prepared foodstuffs; beverages spirits and vinegar; tobacco,” stood at N46.5 billion or 1.5 per cent.
 
Consequently, export grew by 0.9 per cent, while that of import closed lower 0.9% from the Q4 2016 figure, emphasising the dominance of crude oil exports in Nigeria’s trade structure, contributing N2.37 trillion or 79.1 per cent, to the value of total domestic export trade in 2017.This, however, showed that diversification project and development of the value chains, which is aimed at products’ value addition are yet to deepen or yield fruits, as greater number of the exports were still raw. Besides, oil took almost all the value of the exports as usual.
 
Similarly, Nigeria’s debt stock, which rose to N19.15 trillion ($62.91 billion at official exchange rate of N304.4) as at March 31, 2017, against N17.36 trillion at the end of December 31, 2016, has remained topical issue in the survival discourse.The latest report showed an increase of N1.79 trillion ($5.88 billion at N304.4 per dollar) in three months, arising from new deals in efforts to overcome 2016 budget deficit at N2.2 trillion. Parts of these deals include $1 billion in February and $500 million in March from Eurobond sales.
 
While public officials have consistently played down the consequences, the obvious is that there has been revenue crisis since 2014, and the debt service bill has risen to 66 per cent of earnings. Worrisome too is that there are plans to borrow more, but the most important thing is these monies must be made to count.
   
The country’s revenue-to-debt ratio and revenue-to-interest payment have long elicited local and international discourse, even as multilateral institutions like the World Bank and IMF have declared it unsustainable, and called for deepening of tax collection as immediate support.

Specifically, of the domestic debt, made up of states and the Federal Government, put at N14.9 trillion, no less than N474.1 billion has been paid out as interest in the first three months of the year- N180.1 billion in January; N106.4 billion in February; and N186.9 billion in March.

Managing Director of Afrinvest Securities Limited, Ayodeji Eboh, is of the belief that as streams of good decisions are capable of bringing positive gains to the economy, the reverse would definitely be the case with one bad decision, which is also capable of spoiling many of good ones.The firm in its report last week noted: “CBN’s ability to maintain its stance of non-interference in the I&E window regardless of the direction in which the naira trends, is highly essential, as a breach on its part will almost certainly retard participation by investors in the equities market.
 
“Again, the ability of the CBN to sustain its timely interventions, which have significantly boosted liquidity in the economy remains susceptible to shocks in the global oil market. The possibility of lower global oil prices and reduced production levels – that could come about through quota limit extension to Nigeria or acts of sabotage – remain key points of concern as they could hinder oil export earnings, which accounts for a major share of total foreign exchange earnings and consequently pressure the external reserves.”