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Issues /Policy: What Is To Be Done?

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A discourse with Dr Adetunji Ogunyemi, Economic Historian, Lawyer and Budget Expert on the post-COVID economic frame work. He is Acting Head of the Department of History, Obafemi Awolowo University, Ile-Ife, Osun State, Nigeria.

In macro-economic terms, there are two ways to react to any economic emergency by the government: (i) by way of monetary policy framework and (ii) by fiscal policy measures. The Federal Government has taken the first measure through the Central Bank of Nigeria (CBN), which by its enabling CBN Act (2007, Act No. 7) has the responsibility and power to so do. That explains why on the 16th and 18th March, the CBN took some deft measures chief among which was a declaration of a moratorium on all principal repayments of loans owed to it effective from 1st March 2020 and reducing interest rates on all CBN loans from 9% to 5% for a period of one year.

The apex bank has also earmarked the sum of N50 billon for the pharmaceutical companies for the expansion of their services arising from sharp increases in demand for those services. On the fiscal policy side, the Federal Ministry of Finance has, through the presidency, submitted to the National Assembly a review of the 2020’s N10.6 trillion expenditure budget, which it seeks to review downward by about N80 billion or so.

To me, these measures are in the right direction. I also consider them adequate for now. They are well conceived because they are in tandem with the constitutional responsibility and powers of government as enshrined in sections 16, 80, 81 and 162 of the Constitution of the Federal Republic of Nigeria, 1999 (as altered) which deal with the economic and fiscal responsibilities of the Federal Government.

The Keynesian thesis, first published in 1936 at the peak of the worldwide economic depression of the 1930s was at play in post-World War II era during the reconstruction of Europe. This was at a time American monetary and military influence leading to the emergence of the US dollar as the dominant World currency had begun to take the World by storm.  The thesis has always emphasised the expansionary fiscal policy/philosophy by which it argues that the best way for a depressed economy (such as we now have all over the World) could get out of its troubles is to embark on an expansion of its expenditure budget by which governments are advised to spend more than they really can earn in order to stimulate demand and then jump-start the economy into recovery.

This kind of thesis is possible in an economy that is essentially productive, have industrial manufacturing capability and a huge export-oriented production drive. Such an economy must also have the right technology and the requisite skills. I am sorry, I do not think that the Nigerian economy is productive enough to embark on the Keynesian thesis.

This is because we lack not just the finance but also the right infrastructural base that can support such an expansionary fiscal policy. Rather, I would advise a cautionary expansion of spending on agriculture and transportation only. Let the Bank of Agric and the CBN step in now to support massive agricultural investment that can generate employment and tax revenue.

This poses a very delicate question on how best to balance the need for livelihood and the need for the preservation of life. I think the economy can reopen in the agricultural, construction and service sectors. However, we need to be reticent in reopening the schools. Testing and tracing of the COVID-19 cases should continue but certainly, we cannot afford to open our schools now thereby exposing our children to grave dangers of infection.

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