Aluko decries Nigeria's monetary, fiscal policies
RENOWNED economist, Prof. Sam Aluko has said that the nation's monetary, fiscal policies had remained impediments to the nation's economic growth.For instance, he pointed out that the Naira was "highly undervalued" when it should have been made convertible to reduce exchange rate pressure on it.Besides, he added that the fiscal policy required over-hauling, to bring about a more business friendly interest rate regime.
Aluko in a statement made available to the News Agency of Nigeria (NAN) in Akure, Ondo State recently, however, said, "it is better to leave the exchange rate of the naira as it is and take measures to continue to strengthen it."According to him, the exchange rate of the naira has been stable at N127.50 to the dollar since early this year, up from N132.50 in 2005. "There is no doubt that even at N127.50 to one dollar the naira is highly undervalued, the naira should be made convertible so as to reduce exchange rate pressure on it.
This is possible in view of the appreciable foreign exchange reserves that the country has built up, which is today about the 21st largest in the world and eighth in the low and middle income countries in Africa- only Algeria and Libya have higher foreign exchange reserves then Nigeria.
South Africa, with about 50 per cent of Nigeria's external reserves, makes its rand convertible, while Nigerian's naira remains inconvertible.The rand has appreciated against the dollar by about 30 per cent from 8.6 rand to one dollar in 2001, to 6.8 rand to the dollar today. When the Babangida regime began the devaluation of the naira in 1986, it was assumed that the exchange rate unit of the naira to the dollar would not be higher than five to one.
When in 1993, the naira was stabilised at N21 to $1, the advice to the Abacha regime was that gradually, the rate should be brought down to much below N20 to $1.It is no longer possible today because of the misbehaviour of the Obasanjo regime. However, it is possible to bring down the unit exchange rate of the naira to the dollar to about 100 to one, through a more dynamic performance of the Nigeria economy and by a closer-ordination between the monetary and the fiscal policies of government, without much disturbance to the existing incomes, wages and prices policies," Aluko said. The economist, who was obviously adding his voice to the controversy generated by the suspended Naira redenomination policy announced by the CBN Governor, Prof. Chukwuma Soludo on August 14, advised the apex bank not to act alone as if the naira is its private property.
On the implication of high interest rates for a growing economy like Nigeria, Aluko explained: "Pari Passu, with a healthier naira should be a reducing rate of interest, much less than 10 per cent for agricultural and industrial investments.Nigeria will remain uncompetitive in international markets as long as the rate of interest remains as high as 20 per cent, compared with 4.5 per cent in USA, about five per cent in Western Europe and 1.9 per cent in Japan.
Small and medium industries in Japan, for instance, the rate of interest is as low as 0.7 per cent. The naira cannot continue to appreciate if Nigeria continues to remain import-dependent even in those goods and services in which it should be an exporter. The monetary policy of the Central Bank should not be essentially devoted to reducing the quantity of naira in circulation, through arbitrarily withdrawing naira from the banks, it should be devoted more to assisting in the increased productivity of agricultural, industrial and service goods, as the Australian Central Bank had done over the years and as it continues to do.
In other words, in the Equation of exchange of MV = PT, the concentration should not be M (quantity of money) and its circulation but also on T (quantity of goods and services) as they are affected by price," Aluko postulated.He explained further that for the naira to continue to appreciate "exports must increased considerably and imports must reduce also considerably.
"Nigeria's share in the global output of goods and services must increase, so that by our running lower external deficit, Nigeria will continue to accumulate larger reserves and continue to adopt more planned economic policies that will make our economy less vulnerable to external shocks.
All these will make the naira exchange rate less volatile and increase the confidence of domestic and external investors in it and in the economy. According to him, better fiscal, monetary and exchange rate policies would bring down the rate of inflation, even though low inflation rate per se does not necessarily lead to economic growth. However, with the low external debt profile of Nigeria today, rapid growth, decreasing rate of inflation and increasing external value of the naira were possible and attainable.He want Governmrnt to ensure that the generality of our people know much more than hitherto on how the economy and our finances are managed, so that those who are able can make appropriate input and exert control over the activities of government, including those of the Central Bank.
In that case, the type of sudden bombshells from the Central Bank on banks, insurance and on the strategic naira will, in future, be avoided. Although the governor of the Central Bank announced the strategy on the naira, it is the voice from abroad. Professor Soludo should not be condemned, but the Obasanjo regime that allowed itself to be held hostage and thus totally surrendered the economic, financial and monetary policies of Nigeria to foreign interests since May 29, 1999.
Aluko in a statement made available to the News Agency of Nigeria (NAN) in Akure, Ondo State recently, however, said, "it is better to leave the exchange rate of the naira as it is and take measures to continue to strengthen it."According to him, the exchange rate of the naira has been stable at N127.50 to the dollar since early this year, up from N132.50 in 2005. "There is no doubt that even at N127.50 to one dollar the naira is highly undervalued, the naira should be made convertible so as to reduce exchange rate pressure on it.
This is possible in view of the appreciable foreign exchange reserves that the country has built up, which is today about the 21st largest in the world and eighth in the low and middle income countries in Africa- only Algeria and Libya have higher foreign exchange reserves then Nigeria.
South Africa, with about 50 per cent of Nigeria's external reserves, makes its rand convertible, while Nigerian's naira remains inconvertible.The rand has appreciated against the dollar by about 30 per cent from 8.6 rand to one dollar in 2001, to 6.8 rand to the dollar today. When the Babangida regime began the devaluation of the naira in 1986, it was assumed that the exchange rate unit of the naira to the dollar would not be higher than five to one.
When in 1993, the naira was stabilised at N21 to $1, the advice to the Abacha regime was that gradually, the rate should be brought down to much below N20 to $1.It is no longer possible today because of the misbehaviour of the Obasanjo regime. However, it is possible to bring down the unit exchange rate of the naira to the dollar to about 100 to one, through a more dynamic performance of the Nigeria economy and by a closer-ordination between the monetary and the fiscal policies of government, without much disturbance to the existing incomes, wages and prices policies," Aluko said. The economist, who was obviously adding his voice to the controversy generated by the suspended Naira redenomination policy announced by the CBN Governor, Prof. Chukwuma Soludo on August 14, advised the apex bank not to act alone as if the naira is its private property.
On the implication of high interest rates for a growing economy like Nigeria, Aluko explained: "Pari Passu, with a healthier naira should be a reducing rate of interest, much less than 10 per cent for agricultural and industrial investments.Nigeria will remain uncompetitive in international markets as long as the rate of interest remains as high as 20 per cent, compared with 4.5 per cent in USA, about five per cent in Western Europe and 1.9 per cent in Japan.
Small and medium industries in Japan, for instance, the rate of interest is as low as 0.7 per cent. The naira cannot continue to appreciate if Nigeria continues to remain import-dependent even in those goods and services in which it should be an exporter. The monetary policy of the Central Bank should not be essentially devoted to reducing the quantity of naira in circulation, through arbitrarily withdrawing naira from the banks, it should be devoted more to assisting in the increased productivity of agricultural, industrial and service goods, as the Australian Central Bank had done over the years and as it continues to do.
In other words, in the Equation of exchange of MV = PT, the concentration should not be M (quantity of money) and its circulation but also on T (quantity of goods and services) as they are affected by price," Aluko postulated.He explained further that for the naira to continue to appreciate "exports must increased considerably and imports must reduce also considerably.
"Nigeria's share in the global output of goods and services must increase, so that by our running lower external deficit, Nigeria will continue to accumulate larger reserves and continue to adopt more planned economic policies that will make our economy less vulnerable to external shocks.
All these will make the naira exchange rate less volatile and increase the confidence of domestic and external investors in it and in the economy. According to him, better fiscal, monetary and exchange rate policies would bring down the rate of inflation, even though low inflation rate per se does not necessarily lead to economic growth. However, with the low external debt profile of Nigeria today, rapid growth, decreasing rate of inflation and increasing external value of the naira were possible and attainable.He want Governmrnt to ensure that the generality of our people know much more than hitherto on how the economy and our finances are managed, so that those who are able can make appropriate input and exert control over the activities of government, including those of the Central Bank.
In that case, the type of sudden bombshells from the Central Bank on banks, insurance and on the strategic naira will, in future, be avoided. Although the governor of the Central Bank announced the strategy on the naira, it is the voice from abroad. Professor Soludo should not be condemned, but the Obasanjo regime that allowed itself to be held hostage and thus totally surrendered the economic, financial and monetary policies of Nigeria to foreign interests since May 29, 1999.
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