The recent reports by the Central Bank of Nigeria (CBN) and the Ministry of Finance of their assessment of the economy for the first quarter of this year made a grim reading. In the separate reports, it was very clear that the economy performed very poorly, when compared to the same period last year, but perhaps in line with expectations within the context of the ongoing global economic crisis.
All the parameters and economic indicators behaved worse, characterizing a very weak economy. Government’s earnings was particularly, as oil price collapsed to an average of $40 dollars per barrel. As a result, government’s revenue declined by 32 percent, when compared to projected income. During the same period, interest rate rose and inflation surged. Non oil receipts also fell as the global economic crisis affected international trade, especially imports and the tariffs that would have accrued thereof.
From all indications, the greatest impact of this is the effect and impact of the prevailing poor economic performance on the 2009 budget. Indeed, the ministry of finance report indicated a 22 percent implementation of the 2009 budget, with the expectation that the implementation will improve in later quarters. The ministry would have been very careful in releasing these details, bearing in mind the failure of the budget process last year when it came to implementation. If the performance continues in this manner, the implementation of the 2009 budget will turn out the way 2008 did.
The implementation of the budget is critical to the support that businesses require to make progress in 2009. The budget contains some key projects in transport, rail, gas, and power, and the current evidence suggests that most of these projects will not be completed so as to make any economic impact this year. This is most unacceptable. Indeed, if the implementation of the 2009 budget follows the tradition of 2007 and 2008, the only success we will be able to ascribe to this government is the effective payment of civil servants’ salaries.
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However, the poor implementation of the 2009 budget in the first quarter is not the only poor indicator in the way the economy is behaving in 2009. In relation to the global economic crisis, and the liquidity challenges in the Nigerian financial system, credit to the private sector is declining. This is the clearest indication yet that the monetary ease that started late last year needs to continue. Although the effect of this on inflation in the medium term needs to be carefully looked at, continuing slowdown of credit will have severe implications for economic activity and growth.
Most importantly, however, there are critical microeconomic decisions and issues that the government can look at to help improve the general performance of the economy in 2009. There are reports that government is committed to continuing the deregulation process of the downstream oil sector. This should be followed to its logical conclusion. The deregulation of the downstream sector is critical to the progress on job creation, investments, especially foreign direct investment, and genuine economic activity in the sector.
It is also important that the government continues many aspects of the reforms that were started by the last administration. The government has started preparations towards the privatization of critical airports in the country. These airports, when privatized has the potential to attract investments and thus lead to improved economic activity in the sector. it is important that the government continues in this direction so as to salvage something for the economy in 2009.
