Finding unique solutions amid global anti-recession strategies

Back in October 2019 during the Sub-Saharan African Regional Economic Outlook press briefing, Mr Abebe Aemro Selassie, director of African Development at the International Monetary Fund (IMF), warned that amid global uncertainties prevalent at the time, growth prospects within the African region was bleak.

This assertion by the IMF director was premised on certain issues, some of which included policy uncertainties, rising protectionism and premium for international trade as well as debt sustainability challenges; all of which inhibited growth progression and consequently ensured lower-than-expected growth outcomes for African nations.

Today, the world still battles a looming recession. Right from the US-China currency duel in 2019 to the Venezuela crisis in 2021, the ravaging bush fires and rising ocean levels due to climate change, which was mostly experienced in 2020 and 2021, the Brexit saga of 2020 and its aftermath effect on an erstwhile united Europe, the novel coronavirus pandemic of 2019/2020 and its ever-mutant discoveries, the labour crisis that rocked the UK in 2022 and now the much-feared Russian-Ukraine battle and the economic sanctions that followed, the world seems to gradually glide into a much-earned recession.

Perhaps, the pandemic and Ukrainian war, being the most recent global incidence, might have taken the worst toll on global economies as countries struggle to wiggle themselves out of the economic consequences of these occurrences. Following these bouts, governments of nations have had to contend with the attendant rising costs while managing currency value at the same time.

For most countries and especially the developed nations, strong demand for goods amidst increasing shortages has been observed. However, many developed nations have managed to maintain relative decency in the value of their currencies when compared to their less-developed counterparts. Post-pandemic, increasing demand for consumables, travel, housing and other investment goods have pushed up prices, while the supply of the same has been sluggishly adjusting to pre-pandemic times. In a comeback against elevated prices that have followed demand imbalance, especially in developed nations, global central banks have been lifting interest rates.

Central bankers across the world are in high hopes that economies will eventually re-open and supply constraints will be eased so that supply-capable consumer spending might resume its normal course. However, the sustained continuance of the Ukraine war has intensified the already undesirable situation as energy and food supplies are disrupted.

As demand remains prompt largely across more resource-enabled industrialised economies across the globe, even amid supply bottlenecks, many central banks have begun pushing up rates beyond historical lows, with the hope that higher borrowing costs will slow consumer demand across the most patronised sectors to give supply a chance to catch up and slow inflationary pressures. Rate increases also follow fears that consumers and businesses are expectant of higher future prices, which may eventually cause inflation to be a more perennial issue to deal with.

This move appears to be working in these countries where monetary policy has been properly calibrated to support growth resuscitation in the face of growing external headwinds. For most developing countries, however, especially Nigeria, adopting the same policy response has not yielded the expected results.

Nigeria’s policymakers seem to believe that raising interest rates where inflationary pressures have been occasioned by an improper balance between debt sustainability imperfections on the fiscal side and appropriate monetary target interventions would solve the puzzle – for good. Aggressive monetary policy in the face of climbing and overwhelming debts, currency depreciation, volatile exchange rate, revenue challenges, structural economic defaults and reclining demand cannot be thought of as a smart move.

Prioritising finding unique, home-based solutions, rather than following the trend without identifying country-specific identities could be a handy word of advice for the sovereign handlers of the economy. In an already overstretched fiscal space, there seems to be some more room for monetary policy to play “super cop” for the nation, if correctly managed. With the knowledge that domestic scenario less-than-rapidly adjusts to the impact of rising global commodity prices as is currently experienced with the Russia-Ukraine scrimmage, home-based policies can prove useful to moderate this effect, thus making the pass-through slower or reversing the trend.

For instance, unifying the exchange rate windows by reducing the premium between the official and unofficial exchange windows and promoting price competition between them could moderate elasticity concerns in the foreign exchange market. Furthermore, addressing FX supply constraints by sufficiently providing foreign exchange to banks and other licensed operators and mandating unabated access to those that genuinely need them is also crucial. Optimising reserve management policies to secure local currency value and promoting efficiency in generating foreign revenue receipts are equally important.

Other areas of importance include promoting economic diversification, which can help reduce reliance on commodity exports, making growth programmes more labour-intensive to create more jobs and enhance growth inclusiveness and the production of local high-value manufactured goods, and increasing focus on non-tax revenue to fund infrastructural development and promote local currency demand and pursuing strategic region-specific, in-country interventions since growth, development and poverty outcomes across different parts of the country have been observed to be uneven or disaggregated.