The Lagos Chamber of Commerce and Industry (LCCI) says the tight monetary policy recommended for Nigeria by IMF is inconsistent with economic recovery process. The Director-General of LCCI, Muda Yusuf, said this while speaking with newsmen in Lagos on Monday.
Yusuf was reacting to the report of the IMF Article IV Consultation on the Nigerian economy. The IMF Article IV Consultations is an independent assessment of the Nigerian economy and the current economic management framework.
“We do not share the view of the IMF that monetary policy needs to be further tightened at this time.
“It is inappropriate to call for further tightening of monetary policy in an economy that is grappling with recession, high unemployment, high operating costs, high interest rates, faltering real sector.
“Already, interest rate ranges between 25 and 30 per cent and this is adversely affecting businesses and stifling economic growth,” he said.
The director-general also objected to the recommendation on review of existing Value Added Tax and excise duty.
“Such a move would not be consistent with the economic recovery process. “It will also not be consistent with the Federal Government’s vision to build an inclusive economy, spur growth, support the real economy and create jobs,” Yusuf said.
He, however, concurred with IMF’s concern over the nation’s fiscal deficit increase from 3.5 per cent of Gross Domestic Product in 2015 to 4.7 per cent of GDP in 2016.
The chamber boss said that the increase in the nation’s fiscal deficit occurred in spite of the under performance of the capital expenditure during the period.
“This could be ascribed to the high cost of governance and revenue shortfalls over the period. It clearly raises concern over the fiscal sustainability in the management of the economy.
“It underlines the need to keep an eye on the size of recurrent expenditure and other measures to promote fiscal consolidation,” he said.
According to him, the chamber also shares IMF’s concern about the increasing cost of debt service in the economy.
“In the 2017 budget, debt service allocation is N1.66 trillion and this is 35 per cent of projected revenue and over 70 per cent of the projected capital spending.
“This disproportionate resource commitment should be a cause for concern.
“The high interest rate of government debt instruments is a principal driver of this scenario, which are high yields on treasury bills and Federal Government bonds. “This underscores our worries about the nation’s debt sustainability,” Yusuf said.
According to him, LCCI aligns with the IMF on the need to ease foreign exchange restrictions to boost foreign exchange inflows from autonomous sources and strengthen investors’ confidence.
He lauded the Central Bank of Nigeria’s intervention in the foreign exchange market, but said that a sustainable framework for the market was inevitable for economic growth.
Yusuf said that LCCI subscribed to the view that financing constraints and increasing aversion to risk by banks had significant effect on private sector’s access to credit in the economy.
“The yield on government debt instruments have become so attractive that a disproportionate amount of resources in the economy are now committed to the purchase of these instruments to the detriment of private sector financing.
“This is perhaps why we are witnessing a prosperous financial sector at a time when the real economy is in crisis,” he said.
He endorsed IMF’s position on the Economic Recovery and Growth Plan (ERGP) and its inclusive vision.
He, nevertheless, said that it was imperative to ensure that monetary policy measures were in alignment with the plan, adding that some key aspects of monetary policy were not currently in accord with the plan.
Yusuf supported IMF’s commendation of the National Bureau of Statistics (NBS) on the quality, timing, availability and range of economic data under the current leadership of the bureau.
He urged the Federal Government to further strengthen the capacity of the NBS to sustain and improve on its performance.