Article IV vs. ERGP - The Third Way


Wednesday, May 31, 2017 07:00 AM / Proshare Research 

Our Proshare confidential report for the month of May 2017 takes an insightful study into two different medium term economic projections on the Nigerian economy. These projections include the Economic Recovery and Growth Plan (ERGP) and the International Monetary Fund (IMF) Article IV on the Nigerian economy. The inflow of recent ex-post figures of the leading indicators for the first quarter of 2017, suggest a need to take a critical look at each projection.  

Certainly, it provides an ample opportunity to find out:

  • The convergence in policy prescription between the ERGP and the IMF Article IV
  • How far apart both policies are in terms of proffering solution to the economic malefic.
  • The kind of trade-off made by each school of thought. 

In the course of the study a risk matrix was constructed to point out the current underlining upside and downside risks to the economy. The risk matrix also highlighted how each individual tailwind or headwind has fared, compared to the previous horizon.   

This report also detailed how potent certain risks like the limited finances of States and Local governments, porous monetary signalling and possible migration flow have on the macro end. 

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A heat map approach provided a hybrid approach to explain how other indicators such as credit cycle and the structure of bank balance sheet has weakened due to earlier nose dive in exogenous inflow. The study pointed out that exogenous inflow still remains limited and other autonomous inflow remains tepid. We are thus of the opinion that limited exogenous inflow will serve as a constraint for some time.   

Therefore, there is a need to tap into less volatile inflow such as non-residential deposit and investment to bridge the finance gap. More importantly, the study stated that surfeit supply and technological gap can be addressed by engaging wholly capital such as licence agreements. 

Evidently, the recovery remains fragile, with five quarters of consecutive contraction. The study further reignited the debate on whether to repel or lean on the cycle in response to bolster the recovery, while admitting that real variables have experienced substantial dilution due to double digit inflation.  

Furthermore, the study stated that an inflation targeting is limited in response to dilution in real variable, as structural factors and supply side shocks from within and abroad, make inflation depend both on monetary factors. Moreover, high cost of capital could amplify the growth of non-performing loan, eventually leading to a collapse in monetary variable.  

Thus, measures that will enhance labour productivity and reduce the growth inertia experienced by qualitative variables should be encouraged. We thus advocate a more mutual enforcing position, one that reducing output gap and reduction in unemployment is as important as price stability.  

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Previous Proshare Confidential Reports  

1.      Lifting The Veil Off The Financial Sector – Apr 2017

2.   Towards An Economic Model for Nigeria; Going Beyond Symptomatic Responses - The Panama Model -  Mar 2017

3.      FX Utilisation in January 2017-Symptoms of An Opaque Structure – Feb 2017

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