Recent events call for deep national introspection on our economic management. These include the recent release on national economic performance by the National Bureau of Statistics, in between two MPC meetings; the push by the government to withdraw the so-called fuel subsidy, and the attendant resistance by the citizens to this move. It also includes the admission by the Minister of Finance, Dr. Ngozi Okonjo-Iweala, that she could only deliver a paltry 5 per cent reduction in national recurrent expenditure from 74 per cent to 69 per cent over four years.According to the NBS, headline inflation rose to 10.5 per cent in October. This is despite the policy activism of the monetary authorities to keep inflation at bay. Over the last one year in particular, the monetary authorities have launched a series of liquidity contractionary moves that have seen Monetary Policy Rate jump from 6.25 per cent in January to 12 per cent in October, and the Cash Reserve Ratio for banks doubling from 4 per cent to 8 per cent. Credit growth especially to the real sector and to consumers which had shrunk as a result of the loan default crisis of 2008/2009 has not also been significant as to impact seriously on investment and consumer expenditure. Banks are still not seriously lending despite the off-loading of their bad loans to AMCON and the stabilisation of the financial system through the injection of capital into the distressed banks. Bankers are not confident to lend. Business is not confident to invest. Consumers are not confident to spend.While our GDP continues to grow at above 7 per cent, we see the first signs that national economic growth rate might be tapering off, as growth rate year-on-year actually declined from 7.8 per cent to 7.4 per cent. Our economic managers have traditionally, undeservedly, thumped their chest that they are responsible for our economic growth. The fact is that as a nation, Nigeria has been very lucky. Global geo-politics, the war in Iraq and the possibilities of another in Iran, coupled with the rise of China has meant that global demand for oil was increasing at a rate faster than it could be supplied. This has led to the rise in global oil prices, a windfall for oil producing nations like Nigeria. The impact on growth rates on economies like Nigeria where oil accounts for 14 per cent of our GDP has been huge. Nigeria has also been lucky by another natural factor, sheer good weather in the last decade which has helped our agricultural output. This along with the increase in cultivation of our huge mass of previously uncultivated arable land has seen agriculture output and contribution to GDP growing to more than 40 per cent, outstripping even the oil sector. The increase in cultivation of previously uncultivated land, however, has little to do with government policy. It is an un-intended consequence of our poor economic management that has seen unemployment standing at more than 23 per cent, with many school-leavers driven to subsistence agriculture just to make ends meet. According to the National Bureau of Statistics, another 1.8 million joined the unemployment queue in the last six months bringing the total number of unemployed in Nigeria to 15 million by June this year.Nothing illustrates our poor economic management than the mass of unemployed youths, massive misery and poverty in a country whose people otherwise should be living with basic comfort. Our GDP growth numbers averaging seven per cent annually over the last ten years have not translated to jobs and economic prosperity for our young people. The social consequences are becoming manifest even beyond crime. There is now a clear correlation between terrorism and unemployment. Yobe and Borno states, the haven of Boko Haram, have the highest unemployment rates in Nigeria at about 60 per cent. Social conflicts and skirmishes are clearly highly correlated to social pressure to survive and the frustrations of young energetic people to get a decent living.Despite aggressive monetary tightening, inflationary pressure has not abated, with core inflation remaining firmly above 11 per cent last quarter. The naira is under pressure. A potential global economic contraction driven by the crisis in the Eurozone could depress oil demand and oil prices, putting further pressure on the naira with attendant imported inflationary pressure. The fact is that we are seeing the limits of monetary activism especially when it is not complemented by sound fiscal economic management. Our monetary authorities might have attempted to be too heroic perhaps out of patriotic passion. Unfortunately, they may be judged by the promises which their grand heroic postures have engendered as those who have the tool box and the tools to fix our economic ailments. Until recently, we virtually forgot that we had a finance ministry (and even a Presidential Economic Management Team) as our reserve bank became a combined fisco-monetary authority.Is there, however, any hope that the fiscal side of our economic management will wake up and become more potent' The admission by Okonjo-Iweala that the current economic management team can only reduce recurrent expenditure by 5 per cent from 74 per cent to 69 per cent over four years leaves much to be desired. Essentially, the federal and state governments will continue to consume virtually all the money they make leaving very little for investments in critical infrastructure, power, roads and education that will drive long term economic growth. Government spending priority continues to be misplaced. The revelation that government intends to build a new house for the Vice-President at a cost of N7bn is unfortunate. The N7bn at non-inflated cost, could probably fix tens of kilometres on the dreaded Ore-Benin Expressway with huge impact on our economic life. Such symbolic gestures are important. It will show that the government recognises the need for sacrifice, for prudence in economic management and it is willing to start with itself. President Jonathan lost a huge symbolic opportunity to communicate commitment to economic prudence by continuing with our traditional bloated ministerial cabinet and huge retinue of Special Assistants. The fact is that the structure of government and its civil service are too large for prudent economic management, especially at this time. The National Assembly has further compounded the problem with its own huge cost as one of the most expensive but least productive parliaments in the world. These are the roots of the Collect and Consume mantra of the government at all levels. This has seen our recurrent expenditure growing to nearly 75 per cent of the national budget. A wise Joseph advised the biblical Pharaoh that the nation should save in its season of fat cows for the coming season of lean cows. Even the ancients understand the principles of economic cycles, of building strong national reserves to absorb economic shocks and uncertainties. In Nigeria however, we are not only consuming everything in our season of fat cows, of high oil prices; we are even borrowing after depleting our national reserves.The Federal Government has not been able to win the debate on the removal of fuel subsidy because the people believe that it has no moral basis to ask them to make sacrifices. The people believe that oil subsidy is a corrupt artificial creation of our governments driven by a perverse incentive not to make our refineries work. The people do not trust that the state will spend wisely and honestly the subsidy when withdrawn for infrastructure development. If people must make economic sacrifice in the form of taxes (which is what the oil subsidy withdrawal is), the government must have the moral credibility to ask them to do so. This seems to be the greatest challenge of government and its attempt at fiscal reforms. Reprioritising national economic spending will be painful in the short term. Rationalising the bureaucracy at federal and state levels; cutting excess fat in government including the National Assembly; fighting corruption and entrenched interests call for a courageous leadership that is credible, that will lead a painful structural economic and political adjustment.- Akanmu, a financial services executive, wrote in from Adeola Hopewell, Victoria Island, via olu.akanmu@yahoo.com.
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