The economy and falling prices of oil

THE recent signing of the 2017 budget into law by the Acting President, Professor Yemi Osinbajo, may eventually prove to be just a presumptuous ritual. The crashing prices of crude oil on the international market could put the dead-on-arrival stamp on the budget. The budget was based on a benchmark of $42, but this was then jacked up by the Senate to $44 per barrel. Sadly, the continuous drop in the global prices of crude oil has signalled the vacuity of the budget proposals.

Experts have indeed averred that the country’s population growth rate of 2.5 per cent without a corresponding growth in the economy can only spell doom. The economy will remain impotent without a drastic and immediate intervention to diversify it and do something essentially different with the country’s currency. For the economy to be able to sustain the population, it must grow either at the same or at a higher rate. But with the contradiction of heavy portfolio of recurrent expenditure and dwindling income, it is not poised for growth or buoyancy. On the contrary, the auguries are bleak and dreary. Indeed, the options to jumpstart the economy from its prostrate essence into productive activity are both dire and desperate.

The Federal Government is aware that one of the first steps to be taken to get the country out of the doldrums is to diversify the economy urgently, even if the nation has to await the period of gestation before the impact can be felt. It has to act fast in this direction in order to get the country back on track because the right attitude is to assume that the era of crude oil has gone for good, especially now that current research is in the direction of renewable energy and the facts speak of considerable progress in this direction.

Even the new emphasis on mineral resources must include further processing to enhance their potential for foreign exchange earnings and create employment locally. The government’s carefree attitude in not being absolutely in charge of the country’s sources of income, as it arguably is with crude oil, has not benefitted the country. It is therefore crucial to engender a new political will that is in tandem with growing an independent and productive economy.

Since the funding of the 2017 budget will be through crude oil earnings and borrowing, the funds must be judiciously spent to ensure that the maximum benefits accrue to the country. The recurrent expenditure portfolio has to be significantly reduced to give enough room for the capital expenditure that can further grow the economy. It would be economically suicidal to fritter away money on recurrent expenditure without taking the time to consider the prospect of increasing the earning potentials of the country and manifesting them. The democratic structure, quite sadly, has failed to bring the required fiscal discipline into government expenditure, foisting a profligate political class on the beleaguered economy.

The recurrent expenditures in all the arms of the government must be reduced in the light of the grim realities confronting the economy and the emphasis should shift more in the direction of growing the economy through capital expenditure and infrastructure development. There is also the need to adopt the more realistic monetary policy of floating the naira in order to arrive at its true value. The idea of multiple values for the naira as endorsed and practised by the Central Bank of Nigeria (CBN) is susceptible to various abuses that can only spell the death knell for the vulnerable, monolithic economy that Nigeria represents.

The good news however is that the story does not have to end in such a tragic and despondent note. The government only needs to demonstrate a firm resolve to turn things round.