Nigeria’s economy poorly managed says Idika Kalu
*Expensive $1bn Eurobond unimpressive
*FX management primitive
Kalu Idika Kalu, the respected economist and two-time Nigerian finance minister, says the country’s economic management is bereft of real action or inspiring targets, it is shrouded in long phrases and devoid of a solid conceptual framework to guarantee success.
In particular, he said there can be no praise singing about an expensive Eurobond of only $1bn for an economy the size of Nigeria’s, when we should be talking of a facility in the region of $25bn, possibly from the International Monetary Fund at near zero interest cost.
Amid a painful economic recession, which has crimped government revenues, marred productivity and inflicted pain in homes and business, Nigeria is working on an initial draft of its highly coveted Economic Growth and Recovery Plan, which the business and investor community have followed with precision to gauge the direction of economic mangers.
Kalu who had a glorious career at the World Bank and was Nigeria’s finance minister between 1985 and 1986 under ex-military head of state, Ibrahim Babangida, and between 1993 and 1994 under military dictator, Sani Abacha, is however unimpressed with the economic management under this government, especially for the government’s lack of ambitious targets and failure to address more crucial issues like setting a conceptual framework for managing the country’s exchange rate mechanism.
“I cannot say by merely looking at the plan that I am satisfied; not until I see a more professionally determined stance on some key issues,” Kalu said in an interview on CNBC yesterday, with the chaotic foreign exchange market in mind.
These ‘issues’ according to Kalu, range from better management of the foreign exchange rate to allowing the market determine the cost of local and foreign investments.
The naira’s hard currency peg against the dollar has drawn widespread criticism and opened the door to round-tripping, according to sources familiar with the matter.
While the naira traded at an average of N305 per dollar at the official window on Wednesday Feb. 15, it exchanged for a premium of around N5o0 at the parallel market, according to abokifx. This puts the spread between both markets at a record N195/$.
“The divergence in FX market is so wide and actually quite ridiculous. A differential of over N100 is absurd and is not done anywhere. We have to review the conceptual framework of how you determine the exchange rate because this affects everything else, including prices, interest rates,” the well respected economist said.
In a signal of the damaging consequence of the foreign exchange policy, the World Bank on Feb. 15 agreed to a $2.5 billion budget support for Nigeria, but warns that a first tranche of $1.5bn will not come if reforms are not implemented to fix the comatose foreign exchange market.
“We have lost time and we should have got to this very quickly. I think if we look at the policies, we should look at the personnel, the economic management team and how to bring in more professional input into some of these things and we should be doing comparative analysis about how much progress we are making,” Kalu added.
Beyond labeling the economy managers as “too complacent” in responding to low oil prices compared to peer countries, the former minister also criticised fund raising plans, saying that the country ought to leverage on IMF loans which come with zero interest rates.
“I recall listening to our own very eloquent Finance Minister saying Nigeria is not in the basket of countries where you talk about IMF and so on.
“Now I do not know how you can explain that. Right now, because of what has happened to other countries, the IMF dropped their interest rates to near zero. That is one of the softest terms and these are people (IMF) who lend you substantial amounts of money,” Idika said.
Egypt and Ghana have been beneficiaries of an IMF-loan programmes in recent times and have received the first tranches of loans, paving the way for additional private inflows of over $9bn in the case of Egypt.
According to Kalu, “It is a matter of a discipline to understand that these are prescriptions for your own economy and not prescriptions for the IMF.
The economic recovery plan is tailored to arrest the slump by boosting output in the Agriculture, Manufacturing, Mining and Service sectors and targets 7 percent growth in 2020.
It is however yet to be approved by the Federal Executive Council.
Big Read |