We are no doubt living in interesting times! President Buhari rode to power on a promise of change, pledging to change the way things are done in Nigeria and bring about renewed hope in our social, political and developmental outlooks. In May 2015, he inherited an economy that was fast sliding into recession, managing to achieve only half its growth forecast.
Fifteen months later, the promise of real change appears to manifest rather slowly, and the president’s ability to deliver on the economy is hampered by recessionary pressures that are mainly due to low oil prices, empty reserves and economic sabotage in the Niger Delta.
All these coming to maturity at the beginning of the change regime.
The timing has never been more inauspicious. On deep reflection, given our own past history, it is easy to conclude that recession is merely a fait accompli, a matter of when and how?
Recession is a necessary evil, an integral component of the modern economic system and this recession will last longer than normal because oil prices will remain low for the forseeable future. Global supply will continue to rise and demand will remain moderately low because the Chinese economy, which is biggest driver of energy demand
in the past decade, has slowed down as it recalibrates its development trajectories.
There is even the risk of China sliding into recession and dragging the entire global economy with it. Not only is that China facing real risks of instability, so also the US, Japan and the already beleagured Euro zone. This is the true picture. Unfortunately for Nigeria, even before the recession began, we have already run out of solutions.
Conventionally, there are five major policy options policy makers can jockey with to present an economy from going into- or bring an economy out of- recession. These include drawing from reserve funds, slashing spending and eliminating subsidies, selling off assets, local and external borrowing and economic diversification. An economy undergoing fiscal crunch can draw from its reserve to fund its spending deficit and smoothen out the adjustment process.
Reserves are created to serve as fiscal buffers to cushion the effects of recession or slowdown.
Countries around the world have created sovereign wealth funds to save and manage excess during period of abundance from which they draw on during crisis. Nigeria’s sovereign wealth fund was created in 2011 to achieve just that, with a starting balance of one bilion dollars, but nothing has been added to it ever since and even our so called excess crude account has very little amount to make any difference.
Countries with large sovereign funds are able to weather the storm to a large extent by drawing from their reserves.
In 2013, the then CBN Governor Sanusi Lamido Sanusi rejected IMF pressure to devalue the naira, preferring instead to defend the naira with our reserves. But that was at a time our foreign reserve was hitting $50 billion, enough to defend the naira for months without any serious consequences.
For Nigeria today, that option no longer exists. Without any reserve, exchange rate pressures. Any attempt to defend the naira will only exacerbate the problem. Depreciation is inevitable and without creative monetary and exchange rate policies the slide can be unstoppable, leading to higher inflation, falling demand and stagnating growth that will plunge the economy into a vicious cycle of recessionary ruin.
Above all, this government needs to improve on its communication efforts. Governance is all about communication. It must learn to communicate its plans to Nigerians in a timely, appropriate, inclusive and inspiring manner, by explaining why some measures are necessary, why we are setting up emergency palliative measures to cushion the
effects before desperation and despair set in.
These are the only ways we can achieve change and manage expectations during a recession. Sloganeering should be followed by sincere action, not by debate over who the change should begin with. The change cannot be complete if it begins with the government and ends only there, it needs the buy in of the public. Likewise, the change cannot be
complete, if it begins with the public and ends there, it needs the sincerity of the government.
– Balogun Emmanuel Funsho writes from Kabba, Kogi State.
He can be reached on 07034444976 or via irule9ja@gmail.com
