Now the budget is here, what next

Finally the 2016 budget controversy is over with the signing of the Appropriation Bill into law by President Muhammadu Buhari last weekend after a four-month delay. With the budget in place, the fiscal policy and plans of the administration are now up and running along with the traditional complementary role it plays with monetary policy in economic stability and development. The prolonged lack of fiscal policy direction is accentuated by a harsh business climate in the country with a huge cost to the economy.

Only last week the National Bureau of Statistics (NBS) reported that in the first quarter of 2016, the economy recorded a 73.39% year-on-year decline in capital imports to USD710.97 million, particularly as foreign direct investment decreased by 55.97% to USD173.73 million. There was also 82.30% year-on-year plunge in portfolio investment to USD201.69 million. Last week also, the Central Bank of Nigeria (CBN) published the Purchasing Managers’ Survey results for April 2016, which showed worsening contractions in both the manufacturing and non-manufacturing sectors. All these come against the backdrop of rising inflation which, had surpassed the CBN’s single-digit red line of 9.6% to peak at 12.8% in March 2016 with April readings forecast to be out next week at over 13%, the highest in several years.

The Naira value has seen its worse position in the first quarter of this year at the rate of N322/ USD1.0 in the open market segment. And the lead indicator – the gross domestic product – (GDP) which has seen one of the worst positions in recent years, is predicted to be worse than the low level 2.1% recorded in the fourth quarter of 2015. All these point to worsening standards of living for an average Nigerian who had expected so much from the new administration that assumed power a year ago. The key thrust of the budget is reflating the economy through bullish capital expenditure and investments. This is a needful bailout, and we applaud it. We believe that the huge financial injection into the economy and the vote for the most vulnerable will boost the purchasing power of the people.

On the macro-economic front, the government in conjunction with CBN, should plan to achieve an appropriate and predictable exchange rate regime by the end of 2016 without necessarily effecting a de-facto devaluation of the local currency. It is important that a harmony of fiscal and monetary policies should be in place to address and achieve low (single digit) interest rates for the real sector while containing inflation rate also at a single digit. Rapid implementation of the capital component of the budget could generate enough impulse to effectively lift aggregate demand in the medium term, thus raising the GDP.