Expert Calls for Increased Monetary, Fiscal Policies Convergence

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Obinna Chima

A Strategist & International Consultant, who is also the CEO, Espera Global Corporation, Dr. Glenn S. Prince-Abbi, has stressed the need for improved monetary policy and fiscal policy convergence and coordination, saying that policy actors must act with more decisiveness with an eye on the ball to quickly put the economy in growth mode.

He pointed out that at a time when economic slowdown continues to affect the condition of living in the country, the federal government as well as the Central Bank of Nigeria (CBN) must pursue policies that would ameliorate the pains of Nigerians.

Prince-Abbi who said this in a speech made available to THISDAY, insisted that policy makers must act with all sense of urgency, “to calibrate the fundamentals the best we can.”
According to him, the action of the Monetary Policy Committee on Tuesday to retain all the key monetary policy indicators was worrisome.

He said he was particularly concerned that the high interest rate regime (deriving from MPR at 14 per cent) was retained without a concretely convincing premise.
Prince-Abbi noted that achieving stable macroeconomic fundamentals was inexorably integral to Nigeria’s economic growth which currently is in limbo and both monetary policy and fiscal policy actions must coalesce to lift the economy.

“I am however worried to observe that this coalescence is at least in one way impeded by the decision to retain in particular the high interest rate regime which in any situation tends to stifle production and by extension economic growth.

“Yes, monetary policy instruments alone cannot engender or trigger economic growth but they can contribute to stifling growth and worsening unemployment if they are wrongly structured as they deny producers of goods and services, i.e. the key economic players, the latitude they need when they are already hedged in by a chain of other factors such as, as well noted by the MPC, high cost of power and energy, transport, production factors, as well as rising prices of imports all of which are visited on consumer prices.

“It goes without saying that the high interest rate regime which is retained has not allowed any form of reduction in the costs that producers are already contending with. A reduction of the interest rate would improve their cost structure as it makes the cost of capital cheaper. They use capital for everything from equipment procurements, to operational costs and working capital expenses. The likely impact of this is that headline inflation which is already at a ceiling breaking 18.33% will remain so if not worsen. I strongly disagree with the CBN on this score,” he added.

However, stated that that government actions at both national and subnational levels in fulfilling payment obligations on salaries, contracts, and release of money for infrastructure will surely help in this regard.

But he insisted that monetary policy adjustments in a situation as desperate as Nigeria’s case do not seem to rise up to converge with these expected governmental actions.

“Usually, high interest rate regimes as part of monetary policy engineering are adopted by national economies partly to check over-supply when such arises. There is a complete absence of such a situation right now in Nigeria. This stringent policy of high interest rate is a cautionary measure taken by the CBN without examining the easing a lower interest rate would tend to allow for producers and all the actors within real sector of the economy.

“The CBN Governor has argued that lower interest rate will worsen inflation. I do not agree. I have said it repeatedly that generally, businesses, farmers and all kinds of producers of good and services benefit from lower interest rate as it encourages them to make large equipment purchases or input spending to expand their production due to the low cost of borrowing.

“This creates a situation where output and productivity increase in tandem, thereby catalysing economic growth in general. These are important indicators of economic growth which we need now. And these entities are the economic players who create the jobs and reduce unemployment.

“We cannot be contending with a sickening economic recession while we are doing nothing to increase producers’ capacity to increase output through as important a thing and as simple a step as increasing their capacity to borrow and enhance their profitability. This ball has been lying precariously in the court of the CBN and the apex bank has not tackled it, while the match of the economy goes on as chances get dimmer against our side,” he added.