Reading through Communiqué’ No. 105 of the Monetary Policy Committee (MPC) Meeting of Monday and Tuesday, January 25 and 26, 2016 one gets the sense that he is listening to a motley crew of socialists, politicians, and actors stuck in the 1980s and unable to comprehend the change that is going on in the world today.
There is no mention of productivity growth, the coming disruptive power of technology such as driverless cars and Artificial intelligence on jobs, lack of modern skills by Nigerian workers, and worst of all there is an eerie sense of denial from some of the members about their policy actions helping to make Nigeria’s economic situation worse than it should otherwise be.
The Nigerian Bureau of Statistics (NBS) reported yesterday that growth slowed to 2.8 percent last year, the weakest level since 1999 and down from 6.2 percent recorded in 2014.
Industrial output also contracted 2.2 percent last year, compared with expansion of 6.8 percent in 2014.
So what are these MPC members focused on, here are some excerpts…
ADELABU, ADEBAYO
“It is expedient for the appropriate agencies to beef up security around oil and power installations within the country to avert the risk of recession.”
MY CRITIQUE
If all it takes are a few bombs going off in the Nigeria Delta to push Nigeria into recession then I dare say that we are already doomed.
More baffling is the fact that the MPC member Adebayo, does not know that the oil sector has been experiencing negative growth since at least 2011, but Nigeria still recorded average growth rates of 6 – 7 percent per annum between 2011 and 2014.
BALAMI, DAHIRU HASSAN
“We need to organize ourselves to do something that will support the economy through nationalistic beliefs by cutting down on the consumption of foreign products, thus, reducing level of imports.”
MY CRITIQUE
No amount of nationalistic beliefs can replace rational economic principles. The soviets tried it and it failed woefully.
BARAU, SULEIMAN
“It is worthwhile that the government has made remarkable progress in containing the insurgency of the North Eastern part of the country, but it is regrettable that militant activities are beginning to rear their ugly trend in the Niger Delta area, reminiscent of the 2006-2008 periods.”
MY CRITIQUE
In the 2006 – 2008 periods when the militants cut back Nigeria’s oil production to less than 1 million barrels a day or about 40 percent of capacity, growth rates in the economy still averaged 7 percent per annum, the stock market was booming and the average incomes of Nigerians were rising.
Evidently the MPC member rather than chasing the Niger Delta shadow, should admit to some responsibility for the below average level of output that the Nigerian economy is experiencing today, one that is way below potential output of near double digits and implying a significant output gap or slack in the economy.
BARAU, SULEIMAN, CONTD.
“The overall motivation for reducing the CRR is to deploy banking sector liquidity into the real sector. It needs to be noted however that such goal could not be achieved instantaneously without some initial challenges like the re-emergence of liquid surfeit. As pointed out earlier, the need to reverse the policy does not arise given the nobility of the objective but the Bank may need to fine tune the liquidity management framework in a win- win manner for the entire system.”
MY CRITIQUE
What the MPC member BARAU, SULEIMAN is invariably saying is that the policy of the CBN to channel funds to the real sector through a cut in CRR has failed.
However since it is a noble cause we must continue to pursue it.
I find this line of thought from a supposed MPC member baffling.
GARBA, ABDUL-GANIYU
“We must understand our vulnerabilities in a world ruled by greed, fear and worry otherwise, we will keep repeating the same mistakes at growing economic, social and political costs.”
MY CRITIQUE
I hate to break it to MPC member GARBA, that world has been ruled by greed since the age of the Greeks and Romans.
The choice is for Nigeria to play the game like the rest of the world or get left behind fast.
GARBA, ABDUL-GANIYU, CONTD.
“In the 2016 spending plan, the planned debt service of N1.36 Trillion is 76% of planned capital spending, 62% of planned deficit, 22% of total expenditure and exceeds the sum of the recurrent allocation to the top five MDAs (Education, Defense, Police Formations, Health and Interior) by about N46 billion! The idea that we are below a threshold and should continue to borrow led Nigeria to a debt overhang problem that took more than half a century (1982-2006) to resolve at very high economic, social and political costs. To rely on the same idea to worsen the triple problems (fiscal deficit, current account deficit and a growing debt problem) is to fail to learn from history and to worsen the likelihood of efficient and effective policies.”
MY CRITIQUE
This may sound like a logical argument at first glance but it is flawed.
Nigeria got into a debt trap in 1982 – 2005 period because it committed the original sin for emerging markets…which is borrowing large sums of money in a currency you do not control (the dollar).
Today majority of Nigeria’s debts are denominated in Naira (90 percent plus).
It is virtually impossible to default on such debts because the Government can inflate its way out of the debt or at the very worst print Naira’s to pay back creditors in essence getting the CBN to monetise the debt.
For fans of Keynesian theory (of which I am not), the expansionary budget means that Nigeria can get the government to fill the slack (temporarily from a lack of investment in the economy).
However this is bound to fail if the FX issues are not sorted out.
Conclusion
If the MPC Communiqué’ reads like it was written by a bunch of academics and actors with not real attachment to economics or real sector businesses it is because there are very few economists on the MPC.
The one economist on the MPC whose thoughts I did find interesting was ADEDOYIN SALAMI.
Salami proposed, for the Committee’s consideration, that the midpoint of the exchange rate band be moved from N197/US$ to N220/US$; and the exchange rate band be widened to +5/-5 percent around the point of N220/$.
His proposals sadly gained no support.
In Closing Salami had the following thoughts:
It is important to note near- term inconsistencies of which sight must not be lost:
- Current FX policy is in consistent with Fiscal Policy. After negative revenue shocks, such as our economy has experienced, using fixed exchange rates to rectify external account imbalances demands that fiscal spending contracts or, at least, that policy brakes are applied in fiscal consolidation, not expansion;
- Furthermore, the presence of twin deficits -fiscal and current account deficit –is inconsistent with the on-going maintenance of fixed exchange rate;
- Interest Rate Policy has become inconsistent with the Inflation Policy objective. The Central Bank’s concentration on FX Rate stability seems to have led to abandonment of its price stability/inflation objective. This may be understandably construed to be a temporary trade-off in our pursuit of stronger growth and employment. But interest rate policy has also been subordinated to Financial Sector Stability, and Credit Policies of the Bank. Witness the Bank’s interventions on poor credit decisions in banking, and the subsidization of interest rates in its implementation of real sector initiatives. In the meantime, signs of a turnaround in trajectories for growth, employment and inflation remain to be seen.
- Market policies in general are becoming inconsistent with Investment Promotion policies. Public resource allocation decisions appear to be distorting and not levelling the playing field; i.e. not promoting broad-based equitable opportunities. They are instead entrenching the abilities of mono and oligopolies, in public and private spaces, to undermine core prerequisites for growth and economic diversification. Such decisions are imposing administered constraints that are in effect choking the free flow of increasingly scarce private capital and material to existing, varied capacities in the economy.
MY CLOSING REMARKS
The MPC members should please listen to the economists in their midst more often!!!
