Friday, October 16, 2009

Making the monthly stimulus packages work

DESPITE the collaboration of the standing presidential economic team and the ad-hoc presidential steering committee, the Yar'Adua administration economic policies have induced and exacerbated instead of containing and fending off the adverse effects of the 2007 global financial meltdown on the already floundering Nigerian economy. At the just concluded 2009 IMF/World Bank annual conference in Istanbul, Turkey, the government delegation announced quite belatedly the plan to release $2 billion out of past excess crude oil savings from the Federation Account as a stimulus package for tackling the unyielding economic problems.

Before assessing the prospects of the proposal, attention must be paid to media reports that President Umaru Musa Yar'Adua first directed the Finance Minister to release the amount, which the National Economic Council subsequently purportedly ratified and vested with the requisite legal backing. That approach does not conform with our written constitution, which mandates the National Assembly to determine the revenue allocation formula as well as authorise distribution of funds from the Federation Account. Such usurpation of legislative functions by the executive arm of government is not in the national interest.

Next, it is necessary to correct any impression that government would inject $2 billion into the economy because N300 billion purported to be the equivalent of the said dollar amount would actually be released. From the point of view of sound economic analysis, the expected impact of correctly infusing $2 billion into the system (which real disbursement of Federation Account dollar proceeds presupposes) is heightened economic activity, which is the very opposite to that of injecting spurious N300 billion equivalent to merely bloat the money supply volume with attendant intractably disruptive macroeconomic problems which suffocate the productive sectors of the economy contrary to the intentions of embarking on a stimulus plan in the first place.

In effect, injecting naira equivalents voids the benefits derivable from export earnings. Nigeria's ruefully laggardly economy is the end product of unrelieved injection of spurious naira equivalents of well over $700 billion oil proceeds that has accrued to the Federation Account over the years. The foregoing explains why the present administration has been unable to reverse the unsatisfactory national economic fortunes: shortfall in oil revenue is not to blame because the executive arm has routinely drawn on the sizeable excess crude oil savings to adequately supplement the budgets.

Yet, as can be gleaned from recent official pronouncements, with barely two months left in the current fiscal year, the list of projects lined up for the N300 billion to be injected is a fair indication that the implementation level of the 2009 budget remains low. It is pointless to itemise the missed projects. However, the aspect of the stimulus plan relating to the settling of outstanding debts owed directly and indirectly to the banking system can and should be fully carried out by all tiers of government.

Recent developments in the financial sector have shown the harmful chain of reaction that results from unpaid debts. Our national experience squelches official hopes that the proposed stimulus package would help revive the manufacturing sector and generate jobs quickly. Much of the N300 billion would end up with cronies of government functionaries and, as in the past, be deployed to hurt domestic manufacturing activity.

However, if government is genuinely desirous of improving the national economy, the official characterisation of a planned routine disbursement from the excess crude oil account as a stimulus package offers a significant starting point. In fact, all monthly allocations from the Federation Account are serial stimulus packages that, once the proceeds are disbursed as earned and properly infused into the economy, will evolve and sustain the conducive environment in which private enterprise will flourish and contribute to the very rapid growth and development of the country. For a prosperous Nigerian economy, all that is required of government is to provide the right conditions for profitable investment by the private sector. It is the precondition for the public/private sector collaborative programme of evolving a private sector-driven economy.