Borrowing our way out of recession
Every member of the Buhari administration who has spoken about the current recession has assured Nigerians that the recession will end “very soon”. Unfortunately, (typical of government in our climes) no one has defined the time frame meant by very soon – leaving the officials an escape route in the event that nothing happens for a year or more.
That also leaves Nigerians and the global investment community in a quandary regarding when a turnaround can be expected.
At the same time, there is vague talk about the strategies being put in place to hasten recovery. Like the time frame, nobody has spelt out the details of the strategies being adopted to rein in the devastations of the rampaging recession. This is surely not good enough. Strategies adopted in secret cannot induce the investments and commitments required from millions of people around the globe to make progress possible.
Right now, Nigerians are confronted with a Buhari Economic Management Team (EMT) whose leading members appear to be working at cross purposes. The Minister of Finance, Mrs Kemi Adeosun, who should be the arrow-head of the fiscal policy and the Governor of the Central Bank of Nigeria (CBN), Mr Godwin Emefiele, heading the monetary policy unit, are on different pages.
The Minister wants lower interest rates to promote investments; the CBN Governor insists on higher interest rates to help increase the inflow of Foreign Direct Investment (FDI) and dollars – which would halt the sliding exchange rate and eventually reverse it.
As things stand, Nigeria is not receiving the benefits of high interest rates because the inflow of foreign currency is not high enough to halt further devaluation of the Naira. At the same time, there is very little new investment going on.
Obviously, the only strategies that would work are those which can bring in some foreign currency at low interest rates to the economy. The recent loan of $1 billion from the African Development Bank (ADB) points to the likely direction the Federal Government will take in that regard. This means the nation will have to depend more on external borrowing in order to secure more foreign exchange and offer relief to our manufacturing and real sectors gasping for breath over the dearth of foreign exchange.
Granted, additional loans for a nation now spending a high proportion of its annual revenue in debt servicing would increase the risk of default and may not be sustainable in the long term.
But, external borrowing appears to be the only way to break the deadlock between the Minister and the Governor and get Nigeria moving again. Without it, we will be stuck in the mud of recession for a long time to come.
But great care must be taken not to plunge Nigeria into another debt trap. We must spend our borrowings on wealth-creating ventures, as that is the only way to jump start the economy.