Waiting for Impact of  Economic Reforms? 

Despite recent positive credit approvals by international rating agencies on the Nigerian economy amid ongoing reforms by monetary and fiscal authorities, the impact is yet to permeate the system as disposable income remained largely impaired, James Emejo writes

Nigeria’s most recent credit ratings have acknowledged some of the bold reforms currently being implemented by the government, especially the Central Bank of Nigeria (CBN), leading to salutary impacts on macroeconomic thresholds.

Standard & Poor’s (S&P) currently rates Nigeria’s long-term foreign currency credit rating at B-, with a stable outlook, attesting to Nigeria’s creditworthiness. 

Fitch upgraded Nigeria’s sovereign credit rating to ‘B’ with a stable outlook following reforms and improvements in macroeconomic stability, and reflected the government’s commitment to policy reforms, including exchange rate liberalisation and monetary policy tightening. 

Also, Moody’s Investors Service rated the country at “Caa1” for both its long-term foreign and local currency issuer ratings which indicated a positive outlook.

Macroeconomic indicators, particularly Gross Domestic Product (GDP), unemployment rate, inflation, interest rates, and the balance of payments (BOP) are crucial for understanding and managing an economy, providing insights into its overall health, performance, and potential future trends. 

With recent improvements in inflation, price stability, and BOP, it is no wonder that rating institutions have decided to issue positive assessments to the country.

Hardship Still Elevated 

However,  the country’s macroeconomic success appeared to be at variance with economic reality – as living standards and poverty remained largely elevated despite a reduction in inflation and exchange rate stability. 

The seeming lack of congruence between macroeconomic advances and economic reality was one of the topical issues addressed by CBN Governor, Mr. Olayemi Cardoso, after the 300th meeting of the Monetary Policy Committee (MPC) last week in Abuja.

On the back of improvements in inflation and price stability, the apex bank resolved to leave the monetary policy parameters unchanged at current levels.

The MPC voted unanimously to hold policy, retaining the MPR, the rate at which commercial banks borrow from the central bank, at 27.50 per cent.

The committee also retained the asymmetric corridor around the MPR at +500/-100 basis points, the Cash Reserve Ratio of Deposit Money Banks at 50 per cent and Merchant Banks at 16 per cent, and left the Liquidity Ratio unchanged at 30 per cent.

Cardoso acknowledged the relative improvements in some key macroeconomic indicators which are expected to support the overall moderation in prices in the near to medium term.

He identified specific areas of improvement including the progressive narrowing of the gap between the Nigerian Foreign Exchange Market (NFEM) and Bureau De Change (BDC) windows, the positive balance of payments position, and easing the price of PMS.

He said the committee was satisfied with the progressive moderation in food inflation and, therefore, commended the government for implementing measures to increase food supply as well as stepping up the fight against insecurity, especially in farming communities. 

Nonetheless,  there are growing concerns that the reforms and resulting global approvals appeared to benefit foreign investors at the expense of vulnerable Nigerians as actual prices of goods and services remained out of reach for most Nigerians. 

 Boost in Investor Confidence 

Cardoso, nevertheless assured that the reform initiatives that have been widely celebrated will “begin to yield greater results as time goes on”, painting out that the approval came at a critical juncture when other economies are limping. 

The CBN governor stressed that the bank’s reforms have instilled confidence in the economy and the central bank whose credibility had since been eroded before the assumption of the new administration.  

According to him, such reforms were key to bringing foreign investments that would in turn create jobs and prosperity for Nigerians. 

He said, “Let me comment that the Fitch upgrade is particularly important because it was coming at a time when there were global economic headwinds and shocks, and there was a lot of uncertainty.

“So, it’s important for us to realise that despite all that, there was a move by Fitch to upgrade, and I think that is a very positive signal.

“Now, in terms of how these whole macroeconomic fundamentals are playing out, although there have been positive endorsements from all kinds of bodies that make it a point of duty to observe and critique the moves that various countries are making to ensure they have stability in their economies.”

He said, “Investors don’t go to where there is instability. So, I think that is the first thing to understand on the journey, and this is a journey. 

“Investors don’t go out to invest to lose money. They go out to invest because the economy is stable, and they can plan. With that stability comes confidence, with confidence comes investment, and with investment comes growth and outputs.

“I think that’s the trajectory that you will find in all countries of the world. We have been through a long period of instability.

“And I think that clearly what is being recognised is that the Nigerian economy is now stable, and there’s interest in those who want to invest to now invest.”

Fixing Economy, Not Silver Bullet

Cardoso further explained, “Clearly, the inflation numbers speak for themselves. The overall trajectory is in the right direction. Not one particular aspect of managing the economy is a bullet that will solve all the problems. 

He said, “It’s a multiplicity of different endeavors, and that is why the combination of the efforts that are being made and are yielding results in terms of stability—and don’t forget, the central bank is the custodian of stability in an economy.

“If you look at the exchange rate, for example, volatility has reduced from over four per cent a year ago to less than half of one per cent around now. 

“So, that’s an indication of stability, and with the increasing collaboration between the fiscal and the monetary side, the journey that we are going through will begin to yield greater results as time goes on I have no doubt about that.”

The CBN governor also addressed naira’s depreciation amid global economic uncertainties in recent times, noting that a lot of the measures taken by the CBN to stabilise the economy helped to moderate the depreciation of the local currency, adding that devaluation had been modest compared to other countries during the period of global uncertainty.

He said, “I dare say that if those actions had not been taken when they were, the results would have been a lot more disastrous. So, it’s a good thing that we started these reforms early and that we stayed the course to the point where we built buffers that can withstand shocks that come in.

And that dovetails into your issue of reserves.

“If you look at and make the comparison between Nigeria during the last month or two when the whole issue of global tensions got heightened. Let’s face it—right now, we’re in a period of heightened uncertainty. 

“And if you are all observing, you’ll find that the various currencies of the world were under attack and were having to defend themselves. 

“You’ll find that relative to other countries, Nigeria came out very well engaged. We were able to ensure that our depreciation was very modest and that the stability was pretty much there.”

Analysts’ Perspectives

Speaking to THISDAY on the issue, Group Managing Director/Chief Executive, Bristol Investments Limited, Dr. Chijioke Ekechukwu, attributed the reforms’  lack of impact to the government’s disposition to increase revenues rather than be concerned about citizens’ welfare.

He said, “Nigerians are not benefitting from the economic reforms even as multilateral institutions are rating these reforms high because the reforms are designed to improve the revenue and credibility of the country and not to reduce the poverty situation of its citizens.

“Removal of fuel subsidy, the merging of foreign exchange rates, increase in electricity tariff, increase in value-added tax and other taxes, etc, will continue to reduce the disposable income of ordinary citizens while increasing the revenue of the country.”

The former Director General of the Abuja Chamber of Commerce and Industry (ACCI) said, “As inflationary trends continue to rise, prices of goods remain high, and goods are no longer affordable to Nigerians.

“My recommendation is that the government should endeavour to put the welfare and survival of its citizens into consideration, even as the reforms are being propagated. They should take the reforms in phases while providing succour to ameliorate the impact of the reforms.”

On his part, Managing Director/Chief Executive, SD&D Capital Management Limited, Mr. Idakolo Gbolade, said reform will take a while to make a meaningful impact on the living conditions of ordinary Nigerians, and called for accountability in policy implementation by government agencies. 

He said, “The current reforms will take some time to permeate the economy because of long-term causative factors like high inflation, high cost of doing business, insecurity, and government bureaucracy.  

“The federal government reforms on the petroleum sector, for example, will only begin to impact on the economy when the government refineries are working at full stream and other local refineries have a constant local crude oil supply.

“The various reforms in agriculture, health, energy, and digital economy will also take longer to be impactful because of long-term decadence in these sectors. 

“The federal government needs to hold various drivers of government policies accountable for the slow effect of government reforms and demand accountability from MDAs regarding performance.”