Osinbajo decries lack of synergy between fiscal, monetary policies

Vice President Yemi Osinbajo on Monday decried what he described as the ‘absence of synergy between fiscal and monetary policies in Nigeria.

He said this has led to unnecessary drawbacks in the nation’s economic performance and planning.

“What imports are eligible for foreign exchange must agree with the fiscal ambitions for manufacturing and industry,” adding that “it cannot be the province of monetary policy alone or the province of fiscal policy alone.”

Osinbajo, who listed three challenges that the country must confront going forward, identified as “exchange rate management”, adding that “and this continues to be an issue”

The vice president said the exchange rate of the naira to convertible currencies continues to face significant downward pressures because demand substantially outstrips supply.

“That is just the reality. On one hand, we have tried demand management and rationing, which has not really worked because fixing the price while the parallel market reveals a massive arbitrage merely creates the opportunity for massive rents.

“It will also compound the backlog of remittances for foreign businesses that want to repatriate their legitimate earnings.

Osinbajo, while pointing to the way forward, noted that “the discussion going forward is how best to manage the situation by finding a mechanism for increasing supply and moderating demand which will be transparent and will boost confidence.

“I think that a more market-driven approach will be best, some price discovery within the context of a managed float is certainly required.

“Some efforts at controlled price discovery that had been made in the past include the Foreign Exchange Market (FEM), Interbank Foreign Exchange Market (IFEM), various iterations of the Dutch Auction System (DAS), Wholesale Dutch Auction System (W-DAS), Retail Dutch Auction System (R-DAS).

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“While they may not have been perfect, it would appear as if the rules were clear and there was relative stability. When people know how they can access foreign exchange competitively, this will boost confidence and inward flows will increase.”

“My third issue is that we must focus on value addition and productivity in our economy. This happily is well articulated in our Medium Term Economic Plan 2021-2025. We must in doing so, loosen the generalised restrictions on trade.”

Osinbajo noted that blanket import restrictions were a dampener on economic activity, adding that “a lot of items that might be needed in the manufacturing process

might be affected with a consequent negative impact on value addition in the economy.

“Importation itself is not the problem, it is what you import and what you do with it. It is the value added that matters. This is how jobs and wealth are created.

“Many countries of the world that manufacture are huge importers, and they import far more than Nigeria. Let us take the example of garment manufacturing. Bangladesh, the world’s leading garment manufacturer, does not produce most of the cotton it uses. It only grows 2 percent of its annual cotton requirement.”

He disclosed that in 2019, Bangladesh imported $11.8 billion worth of textiles and apparel while it exported $37.94 billion worth of garments in the same year, adding that “It is clear that there is nothing wrong with importation if you are going to add value and will export. I think that we should focus on doing that”

He stated that the nation must draw valuable lessons from efforts of the current administration, “that coherence and coordination are essential for effective policy implementation.

“It is important for government policies to be coherent otherwise different parts of the government could end up adopting diametrically opposed policies. I think that one of the very important steps that Mr President has taken is the establishment of the Delivery Unit in the Presidency.

“I believe we have done well with regard to using planning as a form of promoting coherence in policy-making and implementation. This is reflected by the adoption of the Economic Recovery and Growth Plan, the Economic Sustainability Plan in response to COVID-19, the National Development Plan 2021-2025, and ongoing work on Nigeria Agenda 2050,” he said.