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…Aligns Monetary, Trade and Fiscal Policy
…To adopt flexible market FX rate
The Federal Government has unveiled a set of eight initiatives to improve macro stability and boost economic growth, as part of its reform proposals.
Documents seen by BusinessDay show that government is now willing to adopt a flexible market-determined exchange rate, while aligning monetary, trade and fiscal policy to reduce demand pressures for currently prohibited 41 items.
More pillars of the plan include an increase in oil production to 2.2 million barrels per day (mbpd) in 2017 by attracting new investments, boosting the tax base to accelerate non-oil revenue and optimising capital expenditure by leveraging private capital.
Others are rebalancing the public debt portfolio with more external borrowing, privatising select oil and non-oil assets, strengthening the supervisory framework of financial institutions and increasing banks capital and improving the current account balance through incentivising Foreign Direct Investments (FDI).
FDI flows to Nigeria fell by 27.83 percent between 2015 and 2016, according to data from the National Bureau of Statistics (NBS).
Nigeria has been hit hard by a sharp fall in crude prices since 2014, which has led to negative growth, widening budget deficits and lack of dollars to fund badly needed infrastructure projects.
The proposed reforms, which are designed to make the economy more resilient, will be unveiled by the end of February, according to government officials.
Africa’s largest economy may expand at 1.5 percent this year, after contracting by an estimated 1.5 percent in 2016, according to the International Monetary Fund (IMF).
Nigeria, which relies on oil revenue for most of its income, is struggling to drag itself out of its first recession in 25 years.
Investors have in the past, criticised reluctance by Nigerian authorities to apply a more flexible foreign exchange rate policy and other macroeconomic reforms to stimulate foreign investment, which has forced the closure of manufacturing plants unable to import raw materials.
The Central Bank of Nigeria (CBN) removed a currency peg in June 2016 but has continued to intervene to keep the naira at about N315 against the U.S. dollar, compared with almost N500 on the parallel market.
Foreign Exchange trading volumes have increased since then but remain low at $8.4 billion in December 2016, compared with $24 billion in December 2014, according to Fitch Ratings.
The reforms are aimed at attracting investments that would help plug a budget deficit of N2.2 trillion ($7 billion) for 2016 and help fund a record budget of N7.3 trillion for 2017 aimed at stimulating the economy.
“Policy change may be slow but the technocrats in government whom we met in Abuja last week would be a credit to any government,” Charles Robertson, global chief economist at emerging markets focused investment bank, Renaissance Capital said.
Sources tell BusinessDay that focused implementation is at the core of the delivery strategy for the plan, with strong political will at the highest possible level, the Presidency, to make it a success.
Parts of the plan are already a work in progress.
Oil production has doubled to near 1.8 million bpd from as low as 1 million barrels a day last year. The government last week, also raised $1 billion in Eurobonds as part of moves for more external financing.
The plan also builds on existing sectoral plans, such as the National Industrial Revolution Plan and Nigeria Integrated Infrastructure Masterplan.
“The budget minister recently emphasised that there was the political will to implement the plan and return the economy to growth. However, the key issue is timing. The recovery plan, in our opinion, is late. We think that a plan for recovery should already have been at implementation stage by now (i.e. should have been unveiled late 2016 given the already dire state of the economy at that time),” Tiffany Odugwe, Senior Analyst at research and investment firm, Cardinal Stone Partners, said.
Sources say that for effective implementation of the plan, government will collaborate closely with business to deepen investments in agriculture, manufacturing and the solid minerals and services sectors.
