Why this economy will fail again, By Uddin Ifeanyi – Premium Times
It is scant surprise that the fowls are coming home to roost as the Buhari administration winds down. Domestic prices are through the rafters. Employment is observable for being scarce. Poverty rates are trending higher. It is not startling either that the dynamic with domestic commentators of a certain vintage looks set to repeat itself.
According to Greek mythology, Cassandra’s tragedy was not that she deceived a besotted Apollo into giving her the gift of seeing tomorrow. It was that failing to requite the affection of one of the vainer deities in the Greek pantheon, the god then included in his gift to her the curse that her prophecies would never be believed. Most domestic commentators who worried about the consequences for the economy of the Buhari government’s economic policies could be forgiven for sympathising with King Priam’s daughter’s plight.
They raised raised alarm early over the general policy direction of the Buhari administration. Only to be promptly dismissed as “errconomists”. According to this latter perspective, the naysayers’ take on the economy was from another time. The fundamentals of the disagreement, meanwhile, remained unchanged. It is one thing to be leery about the private sector’s penchant for pursuing narrow interests and the ease with which this often veers into criminal territory, as the Buhari government has been over its two terms in office. It is a different conversation to then insist that the only remedy is to strengthen government’s presence across the economy.
A bigger debt burden, for example, was advertised as the solution to the economy’s infrastructure challenge. But there was always an objective limit to how well an economy constrained by high business costs, under-investment in human capital, and a grubby public bureaucracy could make use of new monies. In other words, there was a sequencing hurdle before government: structural reforms, first, and borrowing later, or borrow, first, and reform after? Then there was the thinking around government borrowing. Too much of it locally, and rates will rise, pushing credit beyond the private sector’s reach. Along with this, any borrowing made sense only if it reinforced the economy’s capacity to repay this. Yet, the Buhari government borrowed to resuscitate a railway system that then proceeded to bill its customers at less than the cost of providing the service. What was the matter? Just about everything was awry. But what could be done about an administration whose poster minister readily, and regularly, took a cudgel to the debt reliefs negotiated by the Obasanjo administration. He clearly didn’t grok the relationship between the debt deal and Nigeria’s first credit rating. Nor the importance of the rating of the sovereign for successive governments’ ability to borrow.
This tension between evidence-based policymaking and policy made on the ministrations of the spirit was to permeate everything the Buhari administration did in office, till date. As government borrowed locally, the cost of funds rose across the economy ― as the literature predicts. Committed to single-digit bank lending (in an economy with a prohibitive cost base), the Central Bank pegged the rate on savings deposit at a fraction of its benchmark interest rate, implemented the cash reserve requirement asymmetrically. And advertised this as policy unorthodoxy. “A new assault on the ramparts of the Washington Consensus” was how government boosters celebrated this.
As if this was not enough injury to domestic outcomes. The Central Bank further primed its presses in its relentless assault on the bastions of orthodox economics. “Government needed to spend. The central bank was available to lend”. It couldn’t be simpler! It did not matter that government spending was increasingly unproductive.
Yet, a perfunctory search of the internet yields this definition of what the Central Bank actually wrought: “Financial repression is a term that describes measures by which governments channel funds from the private sector to themselves as a form of debt reduction. The overall policy actions result in the government being able to borrow at extremely low interest rates, obtaining low-cost funding for government expenditures”. Investopedia goes ahead to describe how this policy, by robbing domestic savers of their savings, is repressive and how it generally suppresses “growth in emerging markets”. Want to smell the coffee? Just look at our output growth numbers.
As if this was not enough injury to domestic outcomes. The Central Bank further primed its presses in its relentless assault on the bastions of orthodox economics. “Government needed to spend. The central bank was available to lend”. It couldn’t be simpler! It did not matter that government spending was increasingly unproductive. Nor that lending in such conditions was then going to put pressure on domestic prices. Our Cassandras were not only not believed, but they were also ignored. Even as domestic prices are still rising vengefully.
Of course, at no time in our nation’s history do we need to put our best foot forward than right now. Alas, at this most inopportune juncture in the country’s history our politics is but a slanging-match, full of sound and fury, but completely surplus to the country’s economic, social, cultural and political requirements.
It is scant surprise that the fowls are coming home to roost as the Buhari administration winds down. Domestic prices are through the rafters. Employment is observable for being scarce. Poverty rates are trending higher. It is not startling either that the dynamic with domestic commentators of a certain vintage looks set to repeat itself. Against the background of the incumbent administration’s signal failure to husband the economy properly, a reset of perspectives appeared in order. More so when yesterday’s jeremiads are pointing to the unsuitability of the current slate of presidential candidates for the task before them.
Instead, we confront the same cynicism in the teams of the candidates about the gravity of the challenges ahead that boosters of the Buhari administration evinced about the appropriate response to the tasks the government faced. Of course, at no time in our nation’s history do we need to put our best foot forward than right now. Alas, at this most inopportune juncture in the country’s history our politics is but a slanging-match, full of sound and fury, but completely surplus to the country’s economic, social, cultural and political requirements.
Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.
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Mr. Udin is Business Intelligence expert. He is a Member of Premium Times Editorial Board and a Columnist par excellence.
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