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Towards An Economic Model for Nigeria; Going Beyond Symptomatic Responses - The Panama Model

Proshare Confidential	6997 VIEWS
Proshare Confidential
6997 VIEWS

Friday, April 21, 2017/ 6:50 PM /Proshare Research

The persisting monetary disturbance coupled with a high misery index underline the current negative trough effect that has taken hold of the macro economy.

More importantly for a country which has a long history of heading towards symptoms rather than cure. It has become imperative to lend a voice to the debate more than ever before.

This study chose Panama - a country which has a completely different monetary dynamic compared to Nigeria and why? First, it had to delve into flaming Mundel’s model of holy trinity to point out that both countries signed up for capital mobility.

The study also showed that while a favourable oil price attracts strong influx of capital mobility, proper macro discipline void of basic economic flaws is needed to sustain such attraction. Therefore, there is a need to create attraction by resolving basic economic flaws in the real economy.

It went further to identify that favourable price effect could circumvent macro discipline for some time but not all the time. The cost of earlier circumvention adds to the vagary, when favourable price effect has been subdued. Attempts to resist such needed macro discipline only blister the momentum of the vagary.

Therefore to regain the right positive momentum for an escape velocity that will stir productivity. Nigeria is in need of deep macro adjustment both at the fiscal and monetary end at this point of the cycle. The ability to stick to macro management alone will just be a symptomatic response not a real cure to the existing vagary.

Lastly, the report made it clear that a dynamic adjustment path cannot be achieved with the presence of an opaque foreign exchange structure. In order to achieve a dynamic adjustment path, a foreign exchange structure which is anchored by real effective exchange rate is inevitable.

Download the March 2017 – Proshare Confidential report here.

Previous Proshare Confidential Report(s)

1. FX Utilisation in January 2017-Symptoms of An Opaque Structure