Forex scarcity, galloping inflation, low oil production, burgeoning debt service, and worsening insecurity seem to be pushing Nigeria into another recession; BENJAMIN UMUTEME writes.
In what many have come to regard as recession bells tolling when Nigeria’s inflation figures rose to a five-year high of 18.60 per cent, added to a negative Gross Domestic Product (GDP), ballooning debt service and a recurrent expenditure that continues to rise annually, it has become evident that except something is done without delay, the country might just slip into another recession.
This is coming at a time when the country is not getting much from crude oil production due to the high level of theft and vandalism of oil installations. And to make matters worse, the little that is got is all spent on debt service leaving fiscal authorities to borrow to augment payment of salaries and wages, as well as execute some projects.
In the face of headwinds, monetary and fiscal authorities continue to fashion out ways to turn the economy around, but alas, it does not seem to be working.
For instance, in a bid to arrest inflation, the Central Bank of Nigeria (CBN) tightened the monetary policy rate to 14 per cent from 13 per cent. However, it has not had the desired effect as expected.
And experts are of the view that some of the economic challenges presently bedeviling the country were self-inflicted. For instance, the mopping up of the Dollars by politicians as the 2023 general elections have made it difficult if not almost impossible for genuine business men to access their businesses. This is after the Apex bank’s policy to encourage dollar repatriation.
On the precipice
In his view, the managing director, SD&D, Gabriel Idakolo, told our reporter that it was only a matter of time before the country slipped into a recession.
“Despite all measures to save the economy by combination of monetary and fiscal policies it seems as if the situation is not abating as inflation continues to rise as well as food inflation and an alarming rate of insecurity across the country with the exchange rate at free fall, it is a matter of month before the economy will slip into recession,” he said.
He said to halt the drift, the government is left with no option but to stop borrowing, reduce recurrent expenditure and strengthen the real sector.
“The major option left for the government is to change course, halt borrowing, reduce recurrent expenditure and negotiate if possible debt forgiveness, relief or tenor elongation to enable us save some money from debt servicing and salvage the economy. If economic activities can be strengthened and the government revives the exchange rate and increases revenue it could go a long way to avert the looming recession.”
Likewise, Agaba Wilson Agaba, a business consultant, told Blueprint Weekend that the action or inaction of the government will determine whether Nigeria falls into a recession or not.
“A recession is a term used to signify a slowdown in general economic activity. In macroeconomics, recessions are officially recognized after two consecutive quarters of negative GDP growth rates. Some notable indicators of recession include a negative real GDP (indicating a sharp drop in productivity), a decline in real income (and hence reduced purchasing power), a decline in manufacturing and thus increasing trade deficit (negative balance of payment), a high rate of unemployment, a tepid stock market, soaring inflation, and rising interest rates among others.
“If you take a look at the Nigerian economy today, many of the above factors hold true. The question of whether the economy will slip into recession in the next few months is dependent on the action or inaction of the country’s (Fiscal and monetary) policymakers and the heads of the various tiers and arms of the government,” he said.
According to Agaba, a lot needs to be done to navigate Nigeria out of the looming recession.
Agada, the managing director of Dreamheight Global Cpnsult Ltd., said: “For example, the government needs to quickly stabilize the exchange rate as it is having a serious impact on investments and hence production which is the heartbeat of the real sector. The government must also do all it can to improve the security situation in the country.
“Another low-hanging fruit is to quickly reduce the cost of governance and to go all out in the fight against corruption and waste of resources. There are also human capital development issues which require a lot more attention. Also, for sustainable economic recovery, the federal government needs to accelerate the full implementation of the Petroleum Industry Act (PIA), the foreign exchange policy and trade facilitation issues. These, among others, are some of the ways the government can attempt to avert the impending recession.”
As far as political economist Adefolarin Olamilekan is concerned, a lack of foresight by fiscal authorities is responsible for the present situation the country now finds itself in.
He said the indicators have been glaring for a long time, adding that rather than deploring empirical economic policies the country’s authorities continue to implement ill advised economic policies.
“Although, many will still not agree we are heading to recession, going by the performance of the economy in first and second quarters.
“Nevertheless, we must take empirical economic action against such occurrences. More so, the global economic challenge is hitting hard on developed nations, as the majority of them are taking strict fiscal and monetary measures to adverse any negative signs of recessions.
“The Nigerian state must not allow the economy to slip into recession by its lukewarm approach to changing the tide,” he said.
Olamilekan said further that fiscal authorities have not been strategic in addressing the fundamental structural deficit in the economy.
“Regrettably, these structural deficits are the bane to our economic woes for many years by not factoring the vital elements to aid the real sector of the economy. The concern of the authorities over the years in this aspect is not proactive enough; hence, the option they have is to repeat what does not work, but a shortcut that has no lasting solution.
“In other words, just like in the last recession, authorities only focus on cutting down on capital projects, implementing recurrent components fully. The stagnant productive sector and disrupt the productive sector as capital projects that are supposed to stimulate the economy are lacking.
“Chiefly, this takes us back to the issues around our structural deficit hampering our economic development.
That in fact would have been the best option to navigate us out of the looming recession if our productive sector is supported with required structure- electricity, road infrastructure, rail system, accessible forex, enabling security, export mechanism etc
“For me this is the right way and the best option to be taken. Going through the route of shortcuts that have no empirical economy factoring factors would not help.
Averting the danger
To avoid entering the recession woods, Idakolo said the federal as well as state governments need to cut down on their recurrent expenditures.
“Both the state and federal government need to look inwards to generate revenue and reduce borrowing. The state also needs to critically reduce dependence on federal allocation and come up with ingenious ideas to run their states. The federal government should drastically take measures to stop oil theft and cut corruption amongst its MDAs which is the reason the little resources are not impactful,” the financial analyst noted.
Wilson Agaba said the government needs to cut down on leakages.
“As I mentioned above, there is a need to cut down on recurrent expenditure. And this includes the cost of governance as well. Ministries and agencies should be right-sized. Wastage should be curtailed in all ministries, agencies and parastatal. While I agree that we should right size the civil service, I do not agree with the proposal of the governors that it should be based on age. We should rather base it on the usefulness of the role of the employee, their historical records and the relevance of their experience and qualification to the designation they hold. It is about time we ran the civil service like anyone would run the HR of a private organisation,” he said.
What to do
Going forward, Olamilekan said the authorities require proactive decision by blocking leakages in government revenues and impress outlets.
“Another is, authorities must walk the talk of fixing the structural deficit in our economy, as this is the only way to prevent recession now and in future.
“In addition, cutting down recurrent expenditure has to be strategically done without creating industrial disharmony in the system. Conversely cutting down recurrent expenditure must happen at the sub-national government also.
“Furthermore, our economy must focus on exportation of finished goods so as to help in earning more foreign exchange and at the same reduce our importation that puts so much pressure on the naira.
“Lastly, the authorities must not shy away from charging government owned enterprises to rethink their business strategies. Just as authorities continue to give incentive to the private sector as a way of scaling up production.”