Another vital area of consideration as far as blocking the chances of a rough tide in 2022 is the economy. While several aspects of the economy beg for sovereign attention, a central point of focus should be on managing prices.
Prices have a looped effect on the entire economy through a transmission and feedback mechanism; changes in the price system in one sector can directly or indirectly impact other sectors, either simultaneously or separately. A classic example is a change in the naira exchange rate relative to the dollar. When the dollar price increases, then the value of the naira (its exchange currency) falls, which affects the cost of imports. Eventually, domestic prices will also rise in response to higher import prices.
Managing prices is one of the core mandates of central bankers to uphold. Still, there must be a reinforcing effort from the fiscal side to ensure that this mandate remains uncompromised. A real test of accountability and trustworthiness of the CBN and, indeed, fiscal planners about keeping up with the mandate of ensuring that prices remain sufficiently and consistently stable will be seen during the election period and in immediate times after.
With the nation’s public office holders well known to always honour the barbaric practice of money exchange favouring sought positions at the various cadres of governance and power, the likelihood of an exaggerated money supply may not be escapable. Stockpiling and distributing hard currencies in “Ghana-must-go” bags, “bullion vans”, suitcases, sacks, brown envelopes, and so on are common among political office seekers and holders during an election period. This ill practice has multifaceted implications on the economy.
Heavy election spending has the potential of an inflationary scare, especially in the face of an increased campaign spending cap regime, foreign exchange scarcity and a highly depreciated local currency. While it is speculated that a weak link exists between elections spending and inflation, there are fears that the expanded expenditure allowance for campaigns may be strong enough to offset the chance of resilience, given any unfavourable inflation-led outcome. Usually, the various sectors of the economy contract a contagion, given an inflation experience from one or more sectors.
As authorised by the National Assembly, the new campaign spending cap now allows for up to a 400 per cent increase in election expenditure. Electorates for the president’s position are now allowed to spend up to N15 billion on a campaign, unlike the former N1 billion. Campaign spending can sum up to N5 billion for governorship aspirants against the former N200 million. Senatorial office seekers are now allowed to raise up to N1.5 billion for their campaign needs instead of the former N40 million.
Seeking members of the House of Representatives can now utilise up to N500 million for their election campaign needs instead of the former N20 million. Those vying for the State assembly candidacy are now permitted to spend up to N50 million instead of the former N10 million cap.
It is worthy of note that this expenditure categorisation is for each vying candidate, regardless of their political or party affiliations. This means that each candidate seeking public office at the various levels must be willing and able to afford up to the maximum spending requirement. If this is so, then it is possible to have up to a year’s total planned budget on election campaigns alone if all expenses after elections are aggregated. This is scary.
Read also: Minimising socio-economic losses in 2022 (I)
Although some experts have observed that the periods close to the elections are usually characterised by positive output growth while the subsequent period beyond the elections lags, these growth experiences are usually short-termed. Growth driven by significant recurrent consumption expenditure is transitory and cannot sustain a decent developmental cause for the nation.
Furthermore, the money supply increases through government spending in the years before and during elections can lure precautionary monetary actions that can yield undesirable consequences for the real sector. This occurred after the 2018/2019 general elections when the CBN raised interest rates in anticipation that increased money supply from election spending would trigger inflationary pressures.
Preventing a heated economy in the face of a global recovery requires a deliberate effort of the government to embark on a cautionary expenditure programme during the election period, avoid hikes in interest rates that will stiffen credit availability to the real sector, and safeguard the integrity of the local currency by avoiding further depreciation of the naira.
With all these in check, Nigerians will be better positioned to enjoy a decent standard of living on average, and the continuous expansion of the poverty net will see a decent decline going forward.
