NIGERIA can overcome slowing growth with spending as the government plans to create a $25 billion fund combining public and private financing to develop infrastructure, according to Vice President Yemi Osinbajo. This is heartwarming at a time of great fear that the economy might slide into recession.
The decline in oil prices since the middle of last year led Nigeria, Africa’s largest producer of crude, to slash its budget. The country’s credit rating has been downgraded by Standard & Poor’s, while JPMorgan Chase removed Nigeria from its local-currency emerging market indexes. The nation relies on oil for about two-thirds of its revenue and 90 percent of its exports.
The Vice President said government is thinking of dodging the slide into recession by maintaining a healthy spending agenda rather than cutting back. Many in government quarters have already been calling for belt-tightening or austerity measures that could see a deep slash in 2016 government spending.
In reality, it is in times of economic slowdowns that governments should borrow and spend more. Economists have long argued that massive public works in times of recession have, most of the time, had positive effects on economies faced with prospects of slumping. During the 2007/2008 global financial meltdown, the government of President Barrack Obama introduced a massive stimulus package that helped the American economy to overcome its difficult times.
It is, therefore, imperative that President Muhammadu Buhari’s administration takes a cue from this and borrows even from the capital market to shore up spending in 2016. An economic stimulus package by this government will succeed as President Buhari has a track record of successfully guiding stimulus programmes as he did with the Petroleum Trust Fund (PTF).
Buhari has a track record of frugal handling of public funds and zero tolerance for corruption. He will be trusted and supported by the people to borrow and invest heavily in infrastructure.
Government robust spending in times of low cash flow has the capacity to stimulate the economy by increasing demand, production and job creation. On the other hand, deep cuts in government spending will lead to low production resulting from reduction in disposable income in the hands of consumers.
Nigeria could follow the example of Asian countries that financed their stimulus programmes through domestic borrowing mainly by issuing government bonds. It is a global norm that borrowing money domestically in one’s own currency is not nearly as problematic as raising funds from external sources.
We indeed support that Nigeria should not cut spending in 2016 but rather increase budgetary provisions for infrastructure even if we have to borrow. It is a welcome idea and the right way forward.
