[Column] Korede Ologun: Evaluating Economic Expansion for Nigeria
The fiscal roadmap presented by the Finance Minister at the Lagos Business School Annual Dinner for 2016 is a broad spectrum of implicit ideas targeted at improving the status quo. If executed in its entirety, Nigeria should be out of recession before the next presidential election giving the incumbent party a potentially new campaign slogan; change continues.
The fall in export revenue (between June 2015 and April 2016) which resulted in a more than proportionate increase in government spending (N6.07trn budget for 2016) made the expansionary fiscal policy ineffective as a demand management tool. So it is imperative that the output of the export incentives mentioned in the fiscal roadmap handshakes the 2017 budget else the result will be another ineffective fiscal effort and accretion of budget deficit if the process of recovery from depression is long.
We have witnessed the expansionary drive of the current administration drive up inflation figure to record high (October 2016, 18.3%) as the stock of public sector debt rose (20.71% increase in 4 years, while external debt stock increased by 36.27% ). Since the government has been financing its debt-service obligations through distortionary measures, such as rapidly increasing the money supply (which causes inflation), investors have been thrown in the mix. This has put would-be private investors on the side-lines for too long and even when they do invest, they are more likely to opt for projects with quick returns rather than for projects that enhance growth on a sustainable basis over the long run.
The 10-point fiscal roadmap emphasises a plan to further increase government spending in 2017 (over N7trn budget) which will be characterized by a time lag of up to 15 months. The question arises naturally, whether a specific variation in public spending or taxes will bear the desired results or not. This has so far resulted in exaggeration of instability in the economy.
The democratic system of governance in Nigeria will mean that fiscal policy measures are a time-consuming process considering that legislative actions, administrative tasks and the executive process are often delayed resulting in original estimates of revenue earnings and government expenditures becoming irrelevant.
The purpose of fiscal policy will be defeated if the policy cannot maintain a rising supply level of work effort (unemployment rate has risen by 107.81% since January 2015). Similarly, it is important to boost confidence of investors in consumers (crowding-in effect) considering that external conditions beyond Nigeria’s control (recession in other countries) may nullify government policies.
The leading indicator, NSEASI, has gained consecutively for 6 trading days to reflect the optimism for a good turn in terms of increased output and stable economy.