Fiscal Policy Nigeria lacks strategy for monetary policy

To prevent a further decline of the national currency, a lasting strategy has to be introduced by Nigeria's financial institution.

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Finance play

IMF boss and Nigeria's Finance Minister

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Speaking concerning Nigeria’s fiscal policy, the Managing Director, Financial Derivatives Company, Mr. Bismarck Rewane admitted that the country is currently running an unproductive methodology.

He mentioned this at a round table put together by ‘Business Eye’ in Lagos, also predicting that the currency depreciation might endure for a while.

According to him, “When you are in this kind of situation, you must spend your way out of it. The fiscal strategy is intact; what is missing is the monetary policy strategy to reinforce the fiscal strategy.”

“Your exchange rate policy when your price of oil was $114 cannot be the same exchange rate policy when the price falls to $30. We had money, we squandered it; we had opportunity, we gave it up.”

Concerning the impact of the $30 per barrel oil price, he explained, “In 2014, the price of oil was $116 per barrel and the cost of production was $25 per barrel. The yield on every barrel was $91. Cost of production per barrel is still $25, the price is $30. So the yield has gone from $91 to $5 per barrel. That is the magnitude of the problem.

“In 2008, we suffered for nine months only and oil price bounced back. But average price of oil in 2009 was $61.9 per barrel; 2016, the average price is projected at $45. External reserves in 2009 were $53bn; gross external reserves today are $28bn. The exchange rate in 2009 was 150 BDC, official 154. Today, BDC is 300, official is 199. Excess crude account was $22bn in 2009; it is $2bn today. Total external debt in 2009 was $10.4bn; total external debt today is $17.1bn.”

To prevent a further decline of the national currency, a lasting strategy has to be introduced by Nigeria's financial institution.

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