What are our presidential candidates’ thoughts on the economy?

Although most commentators imagine we would end up across the table from the IMF agreeing balance of payments bridging facilities at some point. No inkling of the respective candidates’ thoughts on the complex interface between monetary and fiscal policy management, especially given how this firewall completely collapsed over the last two electoral cycles. As a country, are we still committed to the idea of central bank independence? And what is the calibre and nature of this “independence”?

Last week, the US Federal Reserve ― that country’s central bank ― raised its benchmark interest rate by three-quarters of a percentage point to bring its overnight interest rate to a range of 3.00%-3.25%. This is the third such 75 basis points rise in the benchmark rate since the Fed entered its current tightening cycle. And since March this year, when the Fed (in its attempt to put a lid on rising domestic prices) raised its rate by a quarter of a percentage point (the first time rates were raised since 2018), the Federal funds rate in the US has risen by 300 basis points.

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One effect of rising US rates has been to alter risk perceptions, locally, as a result of which equity prices have fallen as bond yields have risen. Globally this effect has been compounded by movement of funds towards safer asset classes. And so we have seen currencies across the world lose value against the greenback. While a stronger dollar will help the US in its battle against inflation ― imports will come in cheaper ― the disruptions to economies around the world, especially through higher prices will hurt more.

Nowhere will this latter effect be more noticeable or more painful than in emerging and frontier economies. Rising import prices, as the dollar strengthens against local currencies, will feed through to higher domestic prices in these economies. Up until recently, consensus was that the large foreign reserves built up by these countries after the last global financial and economic crisis would stand them in good stead when the next crisis came around. However, a large number of these countries, especially in Africa, have seen their currencies come under pressure as the dollar has risen in value.

Partially, the incumbent government’s double pirouette ― away from domestic borrowing, and then away from concessional foreign borrowing to commercial debt ― will also weigh heavily on the debt conversation. By far the biggest burden, however, will come from the end, next year, of the moratorium on the servicing of a large part of this borrowing.

Whereas cheaper currencies strengthen exports, most governments on the continent have continued to eschew the reforms required to strengthen the resilience and improve the flexibility of their economies. Without these reforms, the gains from improved exports is always going to be small and narrowly dispersed. Beyond these restrictions, though, policy responses in a few such economies, including here in Nigeria, have sought to take the sting out of the inflationary effect of a falling exchange rate by interventions in the local foreign exchange markets. Invariably, this response has simply flushed enormous amounts of scarce foreign reserves down the drain.

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By far the biggest challenge to the domestic economy, though, from tighter global monetary conditions is its effect on the country’s debt. It doesn’t matter where one stands in the debate over whether Nigeria currently faces a debt problem or whether it is merely struggling with a revenue one. The net effect is that higher money market rates abroad will drive up the cost of servicing our external debts. In part, this also reflects the debt binge that the Buhari administration embarked on over the last seven years-plus as it convinced itself that the economy’s biggest priority is the rebuilding of infrastructure. And that government spend is the most effective way of fixing this problem.

Partially, the incumbent government’s double pirouette ― away from domestic borrowing, and then away from concessional foreign borrowing to commercial debt ― will also weigh heavily on the debt conversation. By far the biggest burden, however, will come from the end, next year, of the moratorium on the servicing of a large part of this borrowing. As with most things Nigerian, the debt conversation ― partly illustrated by the splitting of hairs over whether we face revenue shortages or a debt burden ― has been underwhelming.

In the run up to the 1979 general elections, the Shehu Shagari-led National Party of Nigeria (NPN)’s response to the rigour of Obafemi Awolowo’s economic policy playbook was to argue that it had no oversight of the state of the exchequer and was thus not in a position to take a position on anything ahead of its being elected into office.

This is especially so, as we prepare to vote in a new federal government, next year. Attention may have focussed on the health of the candidates, which is not as jejune a discussion as certain corners of the political space would have us believe, if the crises the country needs to resolve are dimensioned properly. But otherwise, the talks over domestic policy options have been fatuous up until now. No mention of how we intend to fix the debt problem. Although most commentators imagine we would end up across the table from the IMF agreeing balance of payments bridging facilities at some point. No inkling of the respective candidates’ thoughts on the complex interface between monetary and fiscal policy management, especially given how this firewall completely collapsed over the last two electoral cycles. As a country, are we still committed to the idea of central bank independence? And what is the calibre and nature of this “independence”?

Nary a whisper!

In the run up to the 1979 general elections, the Shehu Shagari-led National Party of Nigeria (NPN)’s response to the rigour of Obafemi Awolowo’s economic policy playbook was to argue that it had no oversight of the state of the exchequer and was thus not in a position to take a position on anything ahead of its being elected into office. That did not stop it from deriding planks from Awolowo’s Unity Party of Nigeria (UPN)’s policy platform.

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Voters did plump for the NPN in that election. This suggests that there is a very narrow space in which the taciturnity on economic policy of our current crop of “presidential” candidates makes perfect sense. But five years of the Shagari administration ought to have adverted our attention to the dangers of making policy on the fly. Except that this is precisely what we have been doing since 1999 ― baring the Elysian (for policy formulation only, and relatively so) four years up to 2007. And it is what we look like repeating again in 2023.