Nigeria’s economic downturn

Managing Director of the International Monetary Fund (IMF), Ms. Christine Lagarde, came calling a fortnight ago with the message that Nigeria faces tough choices in her strive towards economic advancement.

While commending President Muhammadu Buhari for his anti-corruption drive, the IMF boss stated in unequivocal terms that the economic outlook for the country had become weak, with growth in 2015 estimated at about 3.2 per cent, the slowest since 1999.

Speaking a few days later at a farewell symposium for the Governor of the Central Bank of France, Christian Noyer, in Paris, Lagarde became less diplomatic as she stated unequivocally that Nigeria was under severe economic stress.

In her words, “For a country with a rapidly increasing population, this means almost no real economic growth in per capita terms. Low fiscal savings and reserves restrict the ability to manage shocks. And the weakening oil sector could stress balance sheets and put pressure on the banking system.”

Several other experts and analysts are unanimous in their projections that the economic outlook in Nigeria will remain tense in 2016 largely due to declining crude oil prices and its attendant impact on government revenues and foreign reserves. The implications of this on cost of, and access to, credit will be undesirable, while businesses, especially those with high foreign exchange exposure will continue to face challenges of meeting foreign obligations to suppliers and partners.

Indeed, these are tough times requiring tough measures.

Among the options Lagarde recommended to Nigeria’s policy makers as ways of navigating through the challenging times include stepping up revenue mobilization through the broadening of the nation’s tax base; reducing leakages by improving compliance and enhancing collection efficiency as well as further bolstering of the current five per cent Value Added Tax (VAT) rate, which she said was among the lowest in ECOWAS member-states and the rest of the world. She cautioned against borrowing, saying debt weighs heavily on the public purse, as already, about 35 per cent of the federal budget is used to service outstanding public debt.

Lagarde stated further that the quality and efficiency of every naira meant for capital expenditure could be best guaranteed by investing in high-impact and high value-added projects, adding that streamlining recurrent expenditure through reduction in the cost of running government and efficiency of public service delivery across the various tiers of governments were of utmost importance.

President Muhammadu Buhari has assured that his government was looking inwards to address Nigeria’s economic problems. In a statement through his Special Adviser on Media and Publicity, Femi Adesina, Buhari said his administration would enforce greater discipline, probity and accountability in all revenue generating agencies of the federal government; and that all heads of Ministries, Departments and Agencies (MDAs) of government would fully account for all funds that get into their coffers.

To navigate out of the present economic doldrums will require greater fiscal discipline; building of processes/institutions to plug revenue leakages; tackling corruption; drastically reducing recurrent expenditure and diversifying the nation’s revenue base.

The absence of a conducive business environment, which has caused investors to look anywhere but Nigeria when considering business opportunities in Africa, must also be urgently addressed.

The present economic management team at the centre will therefore do well to immediately begin to take steps to create the right policy environment at the macro and sectoral levels in order to inspire the confidence of investors, while the Central Bank of Nigeria should be compelled to relax its current foreign exchange restriction, which is having a significant negative impact on business.

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