Leading International business journal, the London Economist at the weekend took a swipe on the Federal Government’s borrowing habit in its quest to exit recession. In its latest report on the Nigerian government economic policy, the paper noted that the country has continued to take out expensive domestic and foreign loans. It noted that while debt remains relatively low as a proportion of GDP, at around 15 per cent, servicing it is eating up a third of government revenues. It expressed surprise that after its $1 billion Eurobond issue was almost eight times oversubscribed last month, it is planning to issue another $500 million this year, even as officials of government have also said that they want to borrow at least $1 billion from the World Bank.
It also faulted the policies of the Buhari administration saying they were not different from what he implemented between 1983-85. The paper said Nigerian’s economy shrank by 1.5 per cent in 2016, while inflation has more than doubled to 18.7 per cent in 12 months. It however regretted stated these were happening as the president was out of the country since January 19, receiving treatment for an undisclosed illness. But much of the blame for Nigeria’s current economic troubles can be laid at the door step of the president, it said.
Buhari was inaugurated soon after the collapse of global oil prices, but instead of accepting reality (exports and government revenues are dominated crude oil, he reverted to policies he implemented when last in power in the 1980s, namely propping up the currency. According to it “This has led to shortages of foreign exchange, and squeezing imports. The central bank released the naira from its peg of 197-199 to the dollar in June 2016, but panicked when it plunged, pinning it again at around N305 to the dollar. It also noted that Exchange controls have forced many foreign investors to leave the country rather than wait interminably to repatriate profits. “The country is almost uninvestable,” says one analyst. Importers that can’t get hold of dollars have been crippled. “To take a bad situation and make it worse clearly takes a bit of trying,” says Manji Cheto, an analyst at Teneo Intelligence, part of an American consultancy.
By February 20 the naira had sunk to N520 on the black market, but has since recovered by around 13 per cent after the central bank released dollars and allowed posh Nigerians to buy them cheaply to pay for school fees abroad.
The reprieve is likely to be temporary, though as most analysts agree that the naira should float freely citing, Egypt, which devalued the pound in November in return for a $12 billion IMF bail-out. After falling sharply it found a floor before rebounding as the best performing currency in the world this year. However, Nigerian officials worry that the inevitable inflationary spike could lead to unrest, particularly if they are forced to raise subsidised petrol prices.
The IMF predicts Nigeria’s economy will expand by 0.8 per cent this year but that would lag far behind population growth of around 2.6 per cent. “That’s the real danger, that they will take that as validation their policies are working,” says Nonso Obikili, an economist.