As Nigeria seeks a way out of its current economic recession, the African Development Bank (AfDB) has stated that the country is too big to fail and that there should be a concerted effort by it to coordinate its fiscal and monetary policies more closely.
Akinwumi Adesina, AfDB president, stated this on Monday while fielding questions during a panel discussion at the FT Africa Summit in London monitored in Lagos on CNBC Africa.
He said the country does not have a debt crisis and that the fiscal deficit of Nigeria still qualifies the country for loan that will assist in facing the hard time.
“We believe very strongly that Nigeria does not have a debt crisis. If you look at the fiscal deficit of Nigeria as a share of its GDP which is 2.1 percent is well below the 3 percent that is laid down in the Fiscal Responsibility Act of the country.
“If you are in troubled water what you want to do is how to survive. What is very important for the country now is to actually deal with the liquidity problem. That is what our financing and those of others will help Nigeria to do.
“I think the naira is devalued, but…monetary policy and also the fiscal policy, that synchronisation, that is very important. There is a lot of pressure put on the naira,” Adesina said.
“If you take a look at African economy in the last 10 years, you will agree with me that they have done so very well in terms of economic growth. It is way over 5 percent in most cases and of recent because of slow growth in China, they have been significantly affected and to make it worst there have been significant drop in price of crude oil, especially those who rely on it like Nigeria and Angola.
“These are very tough times for these countries. What we have to do as a multi-national development bank is to provide budget support for them to be able to smoothen the number of issues. They are going to deal with current account deficit and domestic fiscal imbalance. So we got to come in and help.
“We are going to our board next month. We will support Nigeria with $1 billion budget support programme. A part of that include a number of policy reforms that has to be done to rejig the economy. We coordinated very well with others. This is actually cheap source of financing. It will come out with a 1.2 percent 40 years and a 10-year moratorium.
“If you look in terms of debt to GDP ratio which is 15 percent, which is quite low, so you will see that Nigeria can take debt.
“What the country should do is to ensure that you are not taking very expensive loans and ensure that whatever is taken is used very well to support growth-enhancing projects like infrastructure.
“Nigeria, until recently was the largest economy is Africa, and AfDB’s largest shareholder. Between now and next year, we will make investment totalling $4.1 billion in Nigeria. This will span agriculture, power sector, rebuilding of the North East and deepening of the financial market”, he added.
It has been established by experts that the dispute between Nigeria’s monetary and fiscal policy makers over how to lift the economy out of its worst slump in more than two decades may delay the country’s recovery.
Some analysts believe that the delayed approval of a N6.1 trillion budget has stalled the government’s efforts to stimulate economic activity and the naira’s slump since the removal of the N197-N199 per dollar peg on June 20 has fuelled inflation to the highest in more than a decade, extending the decline in consumer spending.
“The problem is that neither the government nor the central bank has a ‘grand strategy’ to fix Nigeria’s economic woes,” Malte Liewerscheidt, an Africa analyst at consultant Verisk Maplecroft, said in an e-mailed response to questions. “What we have seen over the past 18 months are mostly short-sighted tactical responses to ever more pressing problems.”
Inflation at 17.6 percent and a currency that weakened about 40 percent against the dollar since June, coupled with an economy forecast by the IMF to contract by 1.8 percent, underline the policy dilemma.
Matthew Ogagavworia, a financial analyst, said there should be a clear demarcation between monetary and fiscal policies and that the leadership in the country needs to respect that, but stressed that the country needs the two to work together for the good of the people.
“We need to harmonise both monetary and fiscal policy framework for the good of our country”, Ogagavworia said.
“The misalignment between monetary and fiscal policy will remain in the short term,” Pabina Yinkere, Lagos-based head of research at Vetiva Capital Management Ltd., said by phone. “By March, when inflationary pressures reduce, the central bank will have room to reduce interest rates and we will see monetary and fiscal policy get aligned.”