A former President of the Nigerian Bar Association (NBA) President, Mr. Olisa Agbakoba, has posited that it is evident that the oil price shock contributed mainly to the downward spiral in the economy which resulted in the present recession.
According to him, the first step to take in any ailing economy is to diagnose the problem, adding that “in Nigeria’s case, I would diagnose that it is suffering from malignant metabolic economic syndrome, complicated by inflation, high interest rates, unemployment, weak infrastructure and the results of the global fall in the price of oil.”
In a statement he signed and issued to journalists yesterday, the Senior Advocate of Nigeria painted a gloomy picture of the country’s economic situation which he said if not treated with urgency by introducing strong fiscal, trade and monetary policy could lead to depression.
Agbakoba noted in the statement that “We know that Nigeria has experienced mismanagement for several decades but now is not the time to lament but to chart a clear economic policy direction that will give value to the economy. This will entail developing macroeconomic models tailored to stimulate all sectors of the economy and catapulting us out of recession.
“On the issue of monetary policy, there is a lot of confusion. There is the need for harmonisation between Central Bank of Nigeria (CBN) policy which is leaning towards tight liquidity in a bid to harness inflation and the Minister of Finance call for increased public spending on capital projects.”
He noted that that CBN has increased the Monetary Policy Rate (MPR) by 200 basis points from 12 per cent to 14 per cent to combat inflation and stimulate growth.
“The MPR is the anchor rate at which the CBN, in performing its role as lender of last resort, lends to deposit banks to boost the level of liquidity in the banking system. If the apex bank intends to increase the level of liquidity in the economy, it reduces the MPR but increases it when it intends to tighten money supply.
“By increasing MPR, CBN has unfortunately tightened lending. The banking sector requires strengthening and must be empowered to lend. I recommend that money from the Treasury Single Account (TSA) should go back to the banks at single digit rates and that banks’ recommended lending rate should not exceed 5 percent,” he said.
In his analysis, he suggested that the CBN should focus on productive value of the economy and not the numerical value of the naira, adding that: “The recent devaluation of the naira by the introduction of a floating naira exchange rate has not yielded positive results as we see the naira spiraling downwards. In fact the new forex regime caused a drop in the GDP from $500billion to some $350billion by reducing per capita income to below $600.”
While proffering solution to the biting situation, he said: “I feel that government’s monetary policy will be required to move from strict monetarism of the Milton Friedman School of thought to the Keynesian Model. Milton Friedman promoted an alternative macroeconomic viewpoint known as ‘monetarism’, and argued that a steady, small expansion of the money supply was the preferred policy. His ideas concerning monetary policy, taxation, privatization and deregulation influenced government policies, especially during the 1980s.
“I believe strongly that Nigeria can recover from recession and I recommend as a start the need for a Presidential Proclamation at the National Assembly, switching from Austerity Policy to Growth Policy, this will instill hope and form the basis for the way forward. I am not sure if the Economic Emergency Powers requested by the President Muhammadu Buhari would work. I recall that President Shagari had them and failed; the Venezuelan model has also not worked. To boost the economy will require massive spending on infrastructure and public works which will also require manpower resources.”
On the need for huge stimuli for business growth, he said there will be the need to create a debt factor market to soak up non-performing loans presently on the banks’ balance sheets now standing at about N20trillion.
“Also, medium and small businesses must be encouraged and enabled to access funds to grow their businesses as these businesses represent the engine of economic growth,” he stated.