Re-directing Nigerian economy through monetary and fiscal policies

By Prince Oyebade Oyedepo,Fellow Chartered Accountant (FCA)- Updated: Tuesday 30-06-2009

Prince Oyebade OyedepoPolicy is defined as sense of direction providing a guide on future course of actions in line with the vision of its leaders. It involves the choice of purpose and identity, which requires the mobilisation of resources for the attainment of such goals.

The policy formulators must appraise the following factors among others before implementing it.

- Material resources

- Financial resources

- Human resources

- Internal and external analysis

- Strengths and weakness of a firm or country

- Broader societal expectations

- Effects or impact on the society and economy

- Feedback mechanism and method for dealing with desired improvements.

The above considerations precede the implementation of policies otherwise the realisation of its concept may be a mirage.

To direct or redirect the economy of a country may be realised through the following policies.

(i) Monetary: Use of instruments of exchange.

(ii) Fiscal: largely through the use of taxation.

In Nigeria, it is essential to dwell on some of the monetary and fiscal policies in recent past, confirm its impact on the development of the economy.

Monetary:
The Central Bank of Nigeria at one time or the other introduced the following policies;

(i) Consolidation of banking and other financial industry.

(ii) Pegging the interest rate for lending to 22 per cent.

(iii) Emphasis on lending to agricultural and productive sectors of the economy. (iv) Maintaining uniform accounting year-end for banks.

(v) Strict compliance with BTA and other exchange requirements.

Objectives:
(i) To strengthen the banking industry as avenue for growth and development of a nation.

(ii) To create employment opportunities and enhance capacity building.

(iii) To redirect the excess funds in banking industry to other productive sectors of the economy.

(iv) To remove sharp practices occasioned by unnecessary competitions to outweigh one and another.

(v) To curtail inflation and attendant implications.

(vi) To encourage the productive and agricultural sectors of the economy thereby creating expansion for rapid development.

(vii) Massive reduction in cost of production to promote local consumption and encourage exportation.

Impact on the economy
Rather than bringing positive effects, the situations has aggravated as follows;

(i) Unhealthy competition to garner deposit by exposing the young girls of nowadays to indecent practices in a bid to retain their jobs.

(ii) Granting of short - term credits to non- productive sector at between three per cent - five per cent per month, thereby defeating the purpose of growing the economy and reducing the effect of high interest rate on cost of goods and services.

(iii) Encouraging money laundering due to recapitalisation exercise and hijacking the most sensitive part of the economy by those elements.

(iv) Massive importation of goods and services rather than exportation to minimise reliance.

(v) Retaining the country as a mono economy with heavy dependent on oil for survival.

(vi) Wide disparity between interest on deposits and lending thus deriving super profit to the benefit of a handful of investors.

(vii) Discouraging placement of funds on long - term basis for growing the productive sector arising from unattractive interest rate compared to lending rate.

(viii) Inability to curtail the exchange rate hence it is impossible to ensure stability of pricing and other economic determinants.

Fiscal policy
This is aimed at positioning or repositioning the economy through the use of taxation. Some of the objectives may be as follows;

(i) Redistribution of wealth in the hands of individuals by taxing excessively those high income earners to the advantage of low income category.

(ii) Encouraging the development of any particular sector by granting of tax holidays, non-restriction of capital allowances and pioneer status.

(iii) Shifting the tax base from direct to indirect taxes. This is through reduction of direct taxes on individuals and corporate bodies to increasing of indirect taxes that is value added tax.

Specifically, indirect taxes payable on expensive goods may be higher than the one on consumable goods by the less privileged etc.

The productive sector needs to be more encouraged to make the industry more competitive and cost of production reduced to barest minimum.

Presently, it is difficult to appraise the direction of our tax system, I will simply advise that in order to reposition the Nigerian economy better, the following policies must be put in place.

(i) Granting of tax holiday to productive and agricultural sectors for a minimum of five years to stabilise.

(ii) Removal of minimum tax provisions for the two sectors mentioned above.

(iii) Increasing the reliefs or allowances claimable by individuals on pay as you earn scheme to realistic level.

(iv) Shifting the tax base to indirect with focus on expensive goods and commodities to redistribute the wealth of individuals.

Best approach on implementation of future economic policies for rapid development
The problem of our country is not policy formulation, as we are richly endowed with ideas and unparalleled knowledge, but implementation.

In other words, we are never found wanting in the area of formulating policies either originally or lifted from foreign countries.

Therefore, the following solutions are imperative:

(i) Policy must be well defined and articulated. The objective must not be in doubt or unspecific.

(ii) Must be in agreement with the direction of government.

(iii) Subjecting the theory to heated appraisal and objective criticism by experts on the economy Le. chartered accountants, economists, bankers, academia, enforcement agencies etc.

Expert opinion on positive and negative effects of the policies are desirable.

(iv) Weighing the inherent benefits and shortcomings to ascertain whether it is worthwhile or not.

(v) Examining the loopholes on the part of the operators and the users to determine the likely impact on the concept.

(vi) Must be implemented without favour, fear or sentiments.

(vii) Penalties for breach of policy must be stem and without bias.

(viii) Implementation must be across board and without exceptions.

(ix) Feedback mechanism must be instituted to monitor the impact of the policy and ensure that the objectives or concepts are not derailed.

(x) The impact must be felt by all and sundry.

It is my hope that if the government and the policy formulators can implement the above recommendations the economy of our nation will be better repositioned for rapid development and growth.

Prince Oyedepo is an Ibadan-based chartered accountant and taxation expert.