Liquidity Still The Key Factor in Nigeria's Economic Stability in 2020 - Dr Ayo Teriba

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Tuesday, December 17, 2019   /06:30 PM  / By Adesola Borokinni,  Proshare Research / Header Image Credit: BRTNEWS

 

Dr. Ayo Teriba at a one day conference on the economy, noted that for the country to navigate along a sustainable and stable track in 2020, it must improve fiscal liquidity. The conference was divided into four sessions with subject matters ranging from global risks, economic risks, policy risks and opportunities.

 

Riding The Global Liquidity Glut

The first session, addressed issues or concerns regarding present global realities. Dr. Teriba observed that hinging economic growth on the export of primary commodities is a trend that is slowly disappearing. He emphasized that countries such as India, China, Saudi-Arabia and Egypt who are experiencing steady growth are taking advantage of the global liquidity glut. For example, the Indian economy embarked on LPG (Liberalization, Privatization and Globalization) which has made its economy the most open economy in the world for foreign direct investments (FDIs).  On the other hand, Egypt embarked on M.E.G.A (Make Egypt Global Again) to encourage liquidity inflows into its economy.

 

To drive capital inflows into Nigeria, Teriba recommended that policymakers convert corporate assets to financial assets by partially privatizing majority-owned or wholly-owned government enterprises to unlock brownfield F.D.I. To open new spaces for foreign investors to unlock greenfield FDI like India Nigeria needs to liberalize its business architecture further.

 

Reversing Slow Growth

In the second session, major economic constraints such as slow GDP growth, forex restriction, volatile inflation, multiple exchange rates etc. were addressed. To solve Nigeria's economic challenge, Dr. Teriba recommended that policymakers focus on non-tax revenue. He noted that increasing the domestic tax rate was likely to increase the level of poverty in the economy as recent data has shown that a significant number of Nigerians have fallen below the poverty line. He tied Nigeria's struggle with growth and exchange rate stability to the absence of adequate domestic and external liquidity.  Therefore, he noted that solving Nigeria's exchange rate stability problem requires an improvement in external liquidity, while economic growth will boost domestic liquidity.

 

The Different Faces of Two Budgets

In the third session, Teriba addressed the need to bridge the gap between budgeted and actual revenues on the fiscal side, while increasing foreign exchange supply, and domestic financing thresholds to levels required to underpin faster sectorial growth on the monetary side.  To boost fiscal sustainability and liquidity, he suggested that an inventory of assets owned by the government be privatized. He insisted that once the government knows what the assets are, it should value them and rationalize/optimize those with higher market values to unlock liquidity through the exploitation of the identified assets. Dr. Teriba faulted the central bank's monetary policy position saying that "Sacrificing economic recovery, growth and employment for reversible portfolio inflows that may never arrive is too much of a cost on the economy. CBN's policy stance should soften to give growth a chance".

 

Opportunities for Growth

The fourth session dealt with opportunities available to the Nigerian economy. Teriba noted that despite the global slowdown in worldwide growth, there was still an upward trend in global liquidity, which serves as a huge opportunity for the Nigerian economy. He noted that economies like China, India, Egypt and Saudi-Arabia had recognized the role of the Diaspora as catalysts of financial globalization, with governments issuing diaspora bonds to attract record levels of private-to-government remittances from non-resident citizens. China and India each attracted only US$ 7 billion more than Nigeria in 2006, but each now attracts US$50 billion more than Nigeria.  Teriba noted that privatization, commercialization, liberalization and securitization of assets are critical to Nigeria's unlocking its hidden liquidity wealth.


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