Nigeria will require a chutzpah of economic reforms to get out of recession and remain above waters, according to Agusto & Co in its latest news letter.
The National Bureau of Statistics (NBS) released a series of economic data last week including the much awaited second-quarter (Q2) 2016 GDP numbers which showed an economic contraction of 2.06%, confirming Nigeria is now in a recession the first in the lives of over 60% of the country’s population.
Nigeria last experienced a recession in 1991 when the country was still in the throes of military rule. The country got bailed out from that recession by an oil windfall triggered by the Persian Gulf War. This will be a different recession requiring more ingenious policy making.
Agusto & Co, the foremost credit rating agency in Nigeria, specializing in financial institutions, corporate and bond ratings believes that the reforms required for Nigeria to get out of recession will entail a clear ideological understanding of government’s role in the economy.
Agusto & Co has long argued that the core function of government in the Nigerian economy should be the generation of revenue through taxes and the prioritisation of government spending.
“We believe that taxation remains by far the largest and most sustainable source of government revenues. The change in mind set to taxation will require three major principal objectives. The first is that businesses will be encouraged to thrive because the more profitable the businesses, the higher the tax revenue generated thereon. The second is that revenues generated by the government will be used to finance its spending and thirdly, the tax revenue will be used to redistribute income from the rich to the poor.”
The Bureau of Statistics also released other data indicating the country is in dire economic times. Inflation for July rose to 17.13%—its highest since October, 2005 (18.6%)—driven by a rise in the broad categories of core inflation and food inflation to 16.93% and 15.8% respectively. Though, the Central Bank has adopted a taciturn approach to forward guidance on prices, the last published inflation target of 6%—9% is a clear reflection that prices have gone astray.
For too long, the Nigerian economy has ridden on the fortunes of commodity pricing, a resilient populace and an entrepreneurial culture. However, the two latter factors have long been stymied by deep structural bottle- necks that were largely ignored by successive policy makers owing to the fortunes of commodity pricing thus leaving the economy to remain at the fringes of its potentials. The drop in oil prices from the highs of over $100 per barrel to the current $40—$45 levels, helped expose the underbelly of the Nigerian economy. The inactions and poor response of policy makers put the economy on the path of recession.
Iheanyi Nwachukwu
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