Nigeria’s Economic Outlook for 2018
The year 2017 was mixed in economic terms from traumatic recession to recovery. It started with a negative growth rate of 0.8percent, but the economy recovered and moved out of negative growth to a positive path of a long-term sustained growth. For the year 2018, there is a blurred trajectory that would make any forecasts […]
The year 2017 was mixed in economic terms from traumatic recession to recovery. It started with a negative growth rate of 0.8percent, but the economy recovered and moved out of negative growth to a positive path of a long-term sustained growth. For the year 2018, there is a blurred trajectory that would make any forecasts dependent on the school of thought one belongs to. This varies from the IMF projection of 2.1percent to that of the 2.6percent of the rating agency, Fitch, and the revised World Bank’s 2.5percent. All these projections will not make meaning until Nigerians feel the impact on their living standard. It is achievable if only the economic policy makers handle the most crucial elements of the economy, about which there are absolutely no guarantees. This has to do with how the Government settles the 2017 budget poor implementation and how quick is the resolution of the remaining issues relating to Budget 2018. Also important is the propitious holding forth of global oil prices, which currently stand at US$70.00 per barrel. It is also important to continue with the dialogue with Niger Delta militants to ensure that we maintain 2.1 mpd or even higher. In order to have an enduring and a stable macro economy and a framework for long-term sustained growth, certain things are very critical. On the monetary side, there should be a proactive initiative to make improvements as against last year. We hope also to get a fewer multiple exchange rates compared to the past, with the hope of getting a one single exchange rate regime. Although the monetary policy is weak due to heavy deficit on the CBN balance sheet as a result of housing the AMCON liability from the banking industry, the result is interest rates would become too high, and the Monetary Policy Rate, MPR to sustainable levels. As the economy recovers to full-level it is expected that the MPR will be eased downwards. Interest rates matter particularly for SMEs who need affordable credit to build their businesses and generate jobs. One other way the interest rate can brought down by using the excesses unused TSA funds can be given to commercial Banks to loan out to specified sector on agreed rate lower than 10 percent, and the banks can charge one to two percent services charges. In that manner, the interest rate of the commercial Bank will crash and the Banks will gain from the service charges. It will further reduce the various interventions of the CBN. Also, the challenges faced by some of the banks relating to non-performing loans need to be frontally and squarely addressed to safeguard the stability and integrity of our financial system. On the fiscal side, quick conclusion of this year’s budget process and its religious implementation is key to unleashing the kind of spending that will sustain the recovery and get the required job creation that would reduce unemployment level. There is the need for fiscal responsibility to drive the process of growth. The extractive sector needs to be rejuvenated to enhance the extractive capacity of the state. On taxes, the Nigerian workers need a relief to enhance income capacity to participate in the economy effectively. Any kind of increase in taxes will retard growth. Finally, we need more coordination between the fiscal and monetary side. What we have seen in the preceding year was a poor coordination between the two. We need the entire team to do their part, together and in harmony, to ensure positive results. Equally important is the need to keep inflation on check. Although inflation has come down from 19percent to its current 15.1percent, we still have the challenge of food inflation hovering around 20 percent. Another element is the petrol scarcity. This has a tendency to drive up prices, given that the cost of transportation has direct bearing on other prices. Also, in a political-electoral cycle, politicians are to outspend each other to peddle influence and engage in political horse-trading. This also means that both fiscal and monetary authorities have to work together to stem the tide of these spending excesses so that prices remain stable.
Issues need attention
The current international crude oil price of $70.00 is at its highest level in recent times, which is of immense value to Nigeria, who benefitted last year from a stable oil production in the Niger-Delta up to about 2.1ml bpd. The Nigerian government will be hopeful that the crude oil prices remain favorable and that oil production is not disrupted in the Niger-Delta. This will boost revenue levels for the country. The price will likely remain high up to second quarter of this year. The upcoming 2018 census, as well as the 2019 elections, all bunching together in a period of great uncertainty, should be handled with great care in order that their impacts do not adversely affect the recovery of the economy. The recent trend of accusation on herdsmen should also be handled without ignoring the economic implications for the more than six trillion naira industry. It was estimated that the net worth of livestock is in excess of ten trillion Naira. Wage increase could also have both negative and positive implications for the economy. Nigeria currently has the highest unemployment rate of 18.8percent amongst its peer economies. This is one indicator that has to be addressed and how the government approaches it will be critical. Unemployment will definitely find its place in the political rallies that will begin in earnest this year. The timing of the passage and signing of the 2018 Budget will go a long way in dictating the pace of economic activities in the year. If the Budget is signed and is ready by latest February, 2018 it will be a positive development, but anything that delays it into the second quarter will slow down the economy.
Usman wrote this piece from Abuja.