INTERVIEW: What Nigeria needs to do this year to stabilise economy — Buhari’s Adviser

Iyabo Masha, who holds a Ph.D in Economics from American University in Washington, is a member of the eight-member Nigerian Presidential Economic Advisory Council (PEAC). She is a global economist with experience working in central banking, national economic management, and international development, with a strong focus on macroeconomic policies that support sustainable growth and development. She has held top positions with the International Monetary Fund (IMF), the World Bank and the Central Bank of Nigeria.

In this January 4 interview, with Nigerian broadcaster, Television Continental, Dr Masha reviewed the troubled Nigerian economy and the outlook for the year 2021. She recommended measures that could be taken to stabilise and grow Africa’s biggest economy.

PREMIUM TIMES’ Ayodeji Adegboyega found the interview interesting and insightful and has transcribed it for our readers.

Read excerpts of the interview below.

TVC: The economy of sub-Saharan Africa is expected to expand by 3.1 percent this year after a contraction of more than three percent a quarter in the year 2020. The trend in Nigeria’s main macroeconomic sector suggests that the country has limited growth trajectory if you look at the growth, unemployment as well as inflation growing at a faster rate.
Against the backdrop of the COVID-19 pandemic disruption, what pattern of growth do you see in the first two quarters of this year?

MASHA: After the downturn of economic development of the last year 2020, 2021 is projected to be better in terms of growth in the majority of African countries. So you are right there.

For Nigeria, the assumption that underlies the 2021 budget is that the economy will grow at three percent. Now, this is achievable but it’s a bit ambitious but if you look at some of the developments in the latter part of 2020, the economy was already coming out of the contraction induced by COVID and declining oil prices so we had a relatively better quarter three and quarter four looks like it is going to be good because of the recovery in oil prices.

So three percent is something that is achievable for the Nigerian economy in 2021. Now, in terms of how it will play out in the quarters, it depends on how soon the budget is implemented. The budget was approved before the beginning of the financial year which is a very good signal so I assume implementation will resume almost immediately so we will go into 2021 with a lot of momentum. And I think that the first two quarters and indeed the rest of the year will be quite good for the economy. Of course, that depends on how the COVID-19 pandemic plays out and if we are able to roll out the vaccines and also development in the oil sector.

Now the growth trajectory is not as strong as we will like it to be but if we are able to get 3% growth and with a population growth of 2.6percent, then that will be the first time in seven years that the economy will be growing at a faster rate than the population. And also in the budget, the inflation rate assumed is 11.95. If the central bank is able to deliver on that inflation rate, that will also be a significant achievement given that the inflation as of last year is hovering around 15percent. So that will then allow the real production to increase and employers to demand more labours in the labour-intensive sectors and I think it is going to go on and extend into the decade.

TVC: As of December 10 last year, the external reserve lost over 8.2% of its value since the beginning of the year. Now we have limited forex inflows due to the COVID-19 pressure on export proceeds and also financial inflows in the year, how do we now begin to mitigate the transmission of shocks from the international economy on the local economy and also deal with the repayment plan for the borrowings we have seen so far and we expect to fund the year 2021?

MASHA: If you look at the records, I think since the Paris Club exit, we have been very diligent in meeting our obligations to external creditors. So in a growing economy and with decent domestic revenue mobilization, I don’t see any problem in meeting the obligations. As for how we are able to limit the shocks from the external environment to the local economy, that’s a very important question because Nigeria is a very open economy, the trade to GDP ratio is around 33% so that tells me that its an economy that needs to pursue the kind of policies that improves the sentiment of trade so that credit lines, trade lines can remain open.

What can policies achieve? I think in the medium to long term, attention needs to focus on some of those non-oil sectors that are doing well in the export fair. So that will enable us to diversify the sources of foreign exchange that comes into the economy rather than being too dependent on oil or on external development. But in the immediate term, there is also need to build confidence in the economy by meeting our obligations in a timely manner, backlogs of foreign exchange should be cleared as soon as possible so that it doesn’t create the kind of perception that reduces the ability of the external financial organizations to deal with us. Of course, I expect that such payment to be done in a systematic way.

TVC: The latest IMF report on Nigeria’s GDP in the year 2020 estimated Nigeria’s GDP pegged at about $448 billion. This made Nigeria the biggest economy in Africa. Now the same report indicated that Nigeria’s economy will contract by 4.3percent this year 2021. Earlier in 2020, both IMF and the world bank had cautioned Nigeria on the dangers of rising debt levels, now finally, the Nigeria stock exchange also raised by 45.7percent this year, making it also the world best-performing stock market according to Bloomberg. Can you now help us as laymen to understand and put together these seemingly contradictory statements/information?

MASHA: Yes indeed the latest assessment of nominal GDP ranks Nigeria as having the largest economy in Africa as you rightly pointed out. But this is just a measure of size not a measure of performance. What measures performance is the growth rate of GDP which measures how well the economy did in a particular year relative to the previous year and on that score the economy contracted like many economies all over the world.

It is not mutually exclusive. The largest economy in the world indeed can also be the worst-performing. It’s quite similar to the tallest boy in the class being the one that comes last or not being the one that comes first. That needs to be understood.

Regarding the performance of the stock exchange, I have not seen the rating but I take your word for it and I have seen some headlines in that regard. But the stock market itself measures changes in prices from one period to the other.

In general, it tends to be detached from what is happening in the economy because it is being driven by a different set of sentiments so you could see the stock price or asset prices in a particular sector or in some companies rising very fast but when you look at the fundamentals of the company, the company may not be doing that well. So, it is not something that we can relate to each other. Yes it is good to be the best performing stock exchange in the world. At least that is good news. It is good to be the best in something for Nigeria but it is not something we should extend to overall economic performance.

TVC: And don’t you think this will affect the currency performance as well looking at the assumptions we have seen so far in the 2021 budget and how realistic do you think the Naira will trade favourably against the greenback and other global currencies alike?


MASHA: Ok, the budget assumption for the exchange rate is N379 to the dollar. So that’s like a 20 percent loss of value from around this time last year. I think that a lot depends on the recovery in the oil market because that remains the major source of our foreign exchange to the extent that the oil prices are recovering. I believe that the Central Bank of Nigeria will be able to meet its foreign exchange obligations and may also be able to wade off excessive pressure on the exchange rate.

Now as I said earlier regarding the issue of trade, long term, we have to look more fundamentally at how to build the kind of foreign exchange buffers from other sectors not just from oil.

I think that most currencies of the world this year will recover and we will see how that goes. But it might also be a good time for countries to accept some level of depreciation so as to make their exports more competitive.

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