Fantasy economics & the value of the Naira – LBS EBS – Nov 2015

Proshare

Saturday November 07, 2015 08:00 AM / FDC

The requirement that BDCs should submit BVNs, sent the forex market into turmoil and the Naira reeling to N233/$.  The good news is that the Government is said to be planning a spike in spending in 2016.

If the rumour is true that Nigeria plans to spend N8trn in 2016, it will be 100% higher than the 2015 level and a major macro-economic stimulant.

It could be the much needed tonic that Nigerians have been waiting for.  But in life there is nothing like a free lunch.

This will be happening when GDP growth in Q3 will come in at a disappointing 2% and inflation creeps up to 9.5%.  A continuation of stagflation and the need for a countercyclical boost becomes compelling.

The true cost of the economic stimulus, is an increased level of borrowing and compliance with the terms of a responsible debtor.  It also means that the economic managers will have to accept that monetary and exchange rate adjustments are inevitable.  This will be followed by fiscal consolidation.

Businesses in Nigeria are confounded by exchange rate uncertainty and policy vagueness.  Therefore a categorical position on government spending is great news.

These and other issues are discussed in this update of the LBS Executive Breakfast session by B.J. Rewane and the FDC team.

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