The federal government of Nigeria has been urged by industry and economic experts to explore other ways of mitigating economic strains – giving more attention to ease of doing business before adopting the monetary tightening measures suggested by the International Monetary Fund (IMF).
The advice comes amid growing global economic uncertainties that have seen countries desperately seeking ways to contain inflation and drop in economic growth. The IMF has projected a drop in global economic growth, suggesting further measures affected countries could take to weather the impact.
The Fund, in its latest quarterly World Economic Outlook report unveiled at the ongoing Spring meeting in Washington DC, United States, said Nigeria’s economy could drop slightly to 3.2 percent in 2023, and then lower further to 3 percent next year as global outlook sustains high uncertainty amid recent financial sector turmoil, high inflation, ongoing effects of Russia’s invasion of Ukraine, and three years of COVID-19 pandemic.
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Among other factors, the IMF Division Chief, Research Department, Daniel Leigh, stated during a press briefing announcing the report, that geopolitics, monetary tightening and inflation continue to weigh on growth of the global economy facing a rocky recovery.
“For Nigeria, our forecast is one of the most stable ones for this year. We have a slight increase; we have 3.3 per cent in 2022. That’s an upward revision. And for 2023, about the same 3.2 percent, and 3 percent in 2024. So this is an economy with very high inflation as well, and this is why we have a forecast of about 20 percent for 2023,” he said.
Per the report, global growth is expected to expand 2.8 percent this year and 3 percent next year, each 0.1 percentage point less than the Fund’s January projection. That compares with 3.4 percent expansion in 2022.
The IMF therefore urged the federal government to further tighten economic policies to mitigate the expected impact.
However, economic experts have disagreed with the idea of ‘tightening’, saying it could exacerbate the situation. They told the ICIR that Nigeria has reached its limits on tightening, arguing that further monetary tightening could squeeze the manufacturing sector further into crisis.
They urged the government instead, to rally efforts around ease of doing business, to enable manufacturers and other players in small and medium scale enterprises not to be squeezed out by such monetary tightening tools.
“I don’t really agree with this position of IMF on further tightening of our monetary position. As far as I’m concerned, we have reached the limits of tightening. How many countries have a cash reserve ratio (how much money banks can keep in their vaults as permitted by the CBN) of 32.5 percent in the world,” the Executive Director of the Centre for the Promotion of Private Enterprises and former Director-General of Lagos Chamber of Commerce and Industry, Muda Yusuf, told The ICIR.
According to Yusuf, the high interest rate of 18 percent was already squeezing businesses dry, making cost of funds for businesses almost beyond reach.
“The forex challenge is still there and there is no transparency. This is a policy problem. The second concern is energy cost, which is extremely high, and which affects cost of transportation.
“We also have the problem of high costs of production, which makes manufacturers not to sell easily because of high costs occasioned by high inflation and other costs of major concern,” he said, adding that the government needed to do more on the ease of doing business.
Besides giving attention to ease of doing business, another development economist, Celestine Okeke, said the government must pay attention to cutting wastages and fiscal discipline.
“We are doing the wrong type of tightening. We need to cut out wastes from the ministries, departments and agencies of government. Every year, we are buying Hilux vehicles and several unnecessary things. For me, the $800 million they are bringing for the social safety would have been put into getting our refineries to work to lessen the burden of high energy costs.”
Also, the ICIR quoted an economic analyst with the Arise Television, Chuka Mbonu, as saying that high cost of production and weak impact of ease of doing business among others have made things very difficult for manufacturers. He said they’re not things that tightening policies will solve.
“Manufacturers are buffeted by insecurity, lack of power, double taxes, legal fee issues, and high transportation costs. They are not even able to produce goods at a lower price. This issue of monetary tightening would not solve these problems. The fiscal side and enabling business environment has to play its role,” he said.