Former Governor of the Central Bank of Nigeria, Prof. Chukwuma Soludo, yesterday in Lagos, reechoed the warnings that the two major development instruments of the nation- monetary and fiscal policies are still far below desirable. Lauding the current moves of the apex bank as a step forward, particularly in the foreign exchange market, he however, insisted that they are not only short of the target, but indications of panicky measures.
According to him, the ongoing crisis in the sector is the outcome of policy delays and inaction, which degenerated into serious economic challenges, asserting that the solution is still not beyond reach. Soludo, who spoke at the eight yearly Pan African 1:1 Investor Conference organized by Renaissance Capital in Lagos, on Wednesday, said the bright spot for the country is the new economic blueprint, based on the hope that it will be implemented.
But the Global Chief Economist, Renaissance Capital, Charles Robertson, while quoting the World Justice Project, said that Nigeria recorded a significant improvement in its justice system more than any other frontier market, adding that it is a bright spot for the fight against corruption and ease of doing business in the next 12 months.
However, he said it is debatable whether foreign capital will be available for government to “turbo-charge” its recovery plans. The currency restrictions imposed on investors will likely mean that investors demand a premium to invest in Nigeria again. Zambia or Ghana or Egypt by contrast, which allowed currency flexibility, should find it easier to attract investors.
“Our model suggests the currency is fair value at around NGN375/$. Adjusting for oil, perhaps NGN400/$ is more appropriate,” he said. According to him, the risk, which investors are particularly concerned, is that if oil price goes low, even if CBN is able to hold on to its dollar interventions as the major supplier, speculations will resume because its reserves will be depleted.
He expressed worry that since 2012, Nigeria’s electricity production that is needed to boost growth drive has not made any significant change, which he described as one of his “greatest disappointment”. Soludo reiterated that CBN’s credibility, as autonomous institution, must be rebuilt, while the harmonization of fiscal and monetary policies is pursued vigorously and achieved, adding that the current policies will only leave growth at slight margins.
He again faulted the restrictions placed on some items, alleging that decisions have become political than practical economics and that there are better options than experimenting with the wellbeing of millions of Nigerians. He Added that we need import substitution, but not through a crude form. You cannot unify foreign exchange market with discrimination, but through commercial policy and tariff, because such strategy has repeatedly failed in this country and add more trouble. It is 100 steps backward and 15 forward.
This also has something to do with a broken fiscal regime of the country, that is, a system where you have total recurrent expenditure more than revenue, meaning that we are borrowing to finance consumption.
Worrisome is that the borrowing and revenue, which is dollar denominated, are converted at official rate, while the general price level is already adjusted to the parallel market rate, together with some items imported at official rate.
“Now we are having debt service to current revenue at 66 per cent. This is ridiculous and we are heading to nowhere. We need to fix the broken pipe, that is, the revenue has to go up and foreign exchange is part of the whole equation. Of course tax collection and blockage of leakages are important,” he said.