The eight years of the Buhari administration have served up a useful lesson in elementary economics. As a people, we bear primary witness to the government’s failed struggle with the relationship between its spending and rising domestic prices. We saw key state functionaries flail away as they sought to balance the demands from government’s spending needs with that from a sovereign debt profile that rose inexorably. At a further remove, boosters of the government invariably found themselves running ahead of common-sense trying to justify the country’s debt service needs against shallower government revenues.
Also Read: Consensus or Imposition: Democracy Loses at APC National Convention
We have also seen the dangers to the exchequer from the central bank monetising the federal government’s deficit. It is planned now to convert the equivalent of US$47 billion that the Central Bank of Nigeria lent the Buhari administration into a 40-year bond with a 9% coupon. Hopefully, rising domestic prices will make this burden (debt is in naira) easier to bear. After eight years of this benighted policymaking, we also have confirmation that there is no free lunch. And that there are second-round effects (often unintended and injurious to vulnerable sections of the country) even to the best laid policies of mice and men. These are two of the lessons from the monetary policy masterclass that the Buhari government taught. Interestingly, neither lesson was necessary. The possibility of the central bank financing the federal government in extremis and the adverse consequence of this on the economy was familiar to the framers of and anticipated in the enabling statute of the central bank. What is instructive is that the Buhari government chose to ignore this body of settled knowledge.
In consequence we are at the receiving end, in terms of the health of the domestic economy, of the admixture of these many trends. Unfortunately, the the economy’s operating environment, whether it was the pandemic, or immediately after it, the war Russia felt it had to wage against Ukraine, has not been helpful to how well the government has managed the economy. Understandably, therefore, many of us looked to the next election cycle in search of a solution to the current crisis. “What are the candidates of the respective parties likely to offer us next year?” has become the staple of conversation at bukkas and diverse watering-holes.
Also Read: Tinubu’s Emergence Sets the Stage for Titanic Presidential Battle, but Mood in the Country Is Foul
Without much doubt, in all of this conversation, consensus is that we cannot continue down Shit Creek as we have done in the last eight years without a paddle ― and in this leaky boat. Unfortunately, the planks on the economy that the leading candidates have offered as part of their solutions to the problem have all begged the question. Take for example the All Progressive Congress (APC) party’s prescriptions on infrastructure, public finances, and on the exchange rate.
From the APC acknowledging that “The recent dip in our exchange rate is primarily due to global supply and production shortfalls caused by global factors well beyond the scope of our control”, we stumble on the first hurdle. Did the lowering of interest rates by the central bank not push money away from fixed deposits, treasury bills, etc. into a reckless urge to protect wealth from inflation, especially through dollarisation and then bitcoin purchases? And is the insistence by the central bank that exporters convert their dollar earnings into naira at the much lower official rate not one reason why exporters are loth to repatriate export proceeds? It is evidently one reason why the larger part of personal home remittances enter the country via travellers’ pockets. In other words, significant parts of the difficulties with the domestic market for foreign exchange are endogenous, despite the lofty claims by the APC.
What to make of the party’s desire “for a stronger, more stable naira founded upon a vibrant and productive real economy”? Pretty wonky stuff, right? At what level is the naira “weak” or “strong”? If the national currency is to be supported by an economy that works, isn’t it enough that the naira’s exchange rate reflects the economy’s needs and strengths? If the Buhari administration has taught us anything, it is that these are not administratively determined categories. As it was with the Buhari administration, the APC also plans, once elected into office next year, “…to suspend the limits on government spending during this protracted moment of global economic turmoil exacerbated by domestic challenges in security, economy and demography”. If this sounds like a page off Kwasi Kwarteng’s recently bespattered copybook, then there is only one answer to it.
Also Read: The Lunch Hour – Kingsley Moghalu: UNDP Special Envoy
That answer, alas, is not to be found in the use of fiscal excesses to fund the economy’s infrastructure need. We’ve been battering the country’s head against that particular wall to no real effect for eight years. Far better to remove the risks that currently make private investment unattractive, while strengthening the public sector’s regulatory skill set. If you understand that government’s poor finances is arguably the main such risk to growing private sector investment, then you understand why the main lesson from the last eight years is that Nigerians need an economy whose finances are not run out of Bedlam.
