Recently, the government passed a stimulus package of N2.3 trillion as approved by the national assembly to reflate the economy and repair some of the damage caused by the lockdown following the outbreak of the coronavirus. Lockdown anywhere in the world meant the suspension of economic activities and productivity. Besides the absence of creating new wealth that comes from economic activities, there is also the consumption of accumulated income or savings that could have been deployed and invested for more production.
Although lockdown was informed and rationalized on health ground it was an economic disaster to the nation, already buffeted by the crash in the price of oil and rising unemployment and poverty. So how to stimulate the economy denied the creation of new wealth in the period of lockdown to avoid serious and debilitating economic consequences such as recession, or even depression, becomes inevitable to ameliorate such damaging effecting.
Its most recent historical efficacy derives from the 2009 global financial meltdown which brought down several banking institutions and major global brands in the U.S and forced the government to introduce a $1.3 trillion stimulus package to help the economy bounce back by giving loans to companies and businesses to continue in production and keep jobs of workers to create demand, instead of allowing the workers to be laid off, according to conventional capitalist theory. And it worked as the economy recovered within a year and the debt was fully repaid in three years.
However, the historical relevance of this economic policy approach dates to the Great depression of 1929, which devastated the global economy beginning with the U.S. essentially because of the reluctance of the government to intervene. It was his attacks on this traditional capitalism that made Lord Maynard Keynes famous and introduced the policy concept of public sector activism in the economy. It is therefore understandable why nations of the world including Nigeria are falling over themselves to introduce one form of stimulus or the other to cushion the biting effect of the COVID 19 pandemic and the consequent lockdown of the economy.
Again, the intervention is laudable given the expected slowdown in the global economic growth of about five percent and that of Nigeria put at 8 percent. With just a 1.6 negative growth in 2016, Nigeria labored for almost 18 months to exit the attendant recession. So introducing such a stimulus package which is almost a fifth of the 2020 annual budget of N10.4 trillion is commendable, since the money is supposed to be a direct intervention with little encumbrances associated with the bureaucratic control of the budget.
But as commendable and necessary as this stimulus package is, there is a significant downside that calls for caution and even apprehension over its sustainable implementation and positive impact of the economy. That it has worked in other climes is not a guarantee that it would work here; we have seen very laudable and near-perfect policies and programmes elsewhere perverted and bastardised here; it is always in the implementation that we usually always come short of the desired purpose.
Given the current challenges with the implementation of the Central Bank of Nigeria, CBN’s, N50 billion package for homes’ and small businesses ravaged by the lockdown, there is considerable room to worry about the outcome of the programme; as some fire brigade adjustments were introduced by the CBN to ease off the bottlenecks. There is also the issue of adequacy of the package as evident in the CBN programme, which budget N50 billion, but has attracted over 1.4 applications totaling about N500 billion.
Its significance to the stimulus package is that the damage of the lockdown and long period of the struggling economy may have been seriously understated especially given the parlous and fragile state of the economy just recovering from the previous recession, before the lockdown. So the prevailing challenge is how far can the stimulus package go in actually reflating the economy and stop the downward spiraling with its negative effects on poverty and social dislocations that it is intended to stem?
The amount of N2.3 trillion may sound quite sizeable and significant to address the economic situation, but given the fact that the economy had virtually bottomed out and struggled before the pandemic the N2.3 trillion could just be another drop in the ocean. While it may be expected to make some positive impact if all goes well with the implementation, it not likely to solve most of the problems militating against the economy, especially also considering the pressure on the foreign exchange sector of the economy that has led to two devaluations during the lockdown.
Another challenge is that the package may have come a whiff late to salvage the economy. Most countries have already implemented their stimulus package, which ensures that the economy did not hit the rock bottom before introducing remedial like the stimulus. For instance, the U.S. is one of the first to introduce a stimulus of $2.3 trillion leveraging on their previous experience during the financial meltdown, and their economy has since picked up and soared.
While the CBN had provided certain interventions in the absence of the stimulus package, its impact has been marginal due to the fact that there was no palliative during the lockdown unlike what obtained elsewhere. Furthermore, there is the fear of rising inflation which is already close to 13 percent in a recessed economy. It is a dangerous sign that the stimulus package may further spike the rate, which could create more economic pressure as well as poverty, as incomes struggle to cope with inflation.
Although the N2.3 trillion may not be enough to pull the economy out of the wood, its introduction could worsen the inflationary pressure necessitating further monetary regulatory interventions to stabilise the exchange rate to curb inflation; both of which will negate the effects of the stimulus.
In the opinion of this newspaper, the stimulus is necessary and inevitable as a starting point but it is not the cure-all for the economy. Our concern has been the ad hoc nature of managing the economy without a clear blueprint and economic road-map. This to us is the real problem, and not the temporary impact of the pandemic. Oil prices crashed in 2014 and we had so much preachment on diversification and restructuring the economy, which came to little before the pandemic.
Already one of the key aspects of the package, the direct works programme that is supposed to employ 774,000 unskilled poor Nigerians, is embroiled in a controversy between the minister of Labour and productivity and the National Assembly. The challenge is that by the time this issue is settled, the purpose of the programme would be forgotten as the power tussle rages on.
Unfortunately, this government has been good at intentions but abysmal in delivery. In spite of the stimulus, what the economy needs most is a package of policy reforms that will provide investors and planners a direction for the future. Without such reforms as in power, energy, security, health, and education, etc. the stimulus package maybe just one of those things that will come and go as another phase of failed promises in the life of the nation and its people.