Note to Tinubu: Monetary, fiscal authorities working at cross purposes

As Nigeria’s political baton changes from one administration to another, experts are calling for the harmonisation of Nigeria’s fiscal and monetary policies which are currently at odds and upending the economy. The finance sector is the engine of any economy as it makes resources available for investment, thereby promoting economic growth.

This means that monetary policies should align with fiscal policies for the efficient running of the economy.

A typical example of the monetary and the fiscal policies misalignment is the recent Central Bank of Nigeria (CBN) cashless policy which was planned without consultations with the Ministry of Finance.

The CBN withdrew cash from the citizens without recourse to government ministries, departments and agencies (MDAs) whose policies would be affected.

For instance, the CBN’s cashless policy “made nonsense of most of the agriculture policies introduced by the Federal Government, including the CBN itself,” according to a financial expert, Ike Ibeabuchi.

He said many of the farmers who abandoned their farms due to the ill-fated cashless policy might struggle to meet expected targets and obligations, including repaying loans from the apex bank.

Another example is the CBN’s restriction of 45 items, including milk and tomatoes, from accessing the official market for foreoign exchange. The policy has rendered ministers of industry powerless in steering the productive sector of the economy, say analysts.

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In a study entitled, “Interactions between fiscal and monetary policies: a brief history of a long relationship,” which emphasises how both collaborated closely to mitigate the economic effects of the pandemic, the author, Dubravko Mihaljek, said it was monetary policies that kept credit flowing, loosened general funding conditions and stabilised the financial system, while fiscal policies protected families and companies through transfers and loan guarantees. Both approaches supported one another as they progressed, he said.

The need to harmonise monetary and fiscal policy

According to the International Monetary Fund (IMF), the fiscal policy could be profoundly affected by changes in oil revenue, uncertainty in the oil market and volatility, and was directly controlled by the government. 

Monetary policy, on the other hand, is under the direct control by the central bank and is influenced by the financial circumstances in the economy. Experts have argued that financing the budget imbalance and monetary management are two areas where monetary and fiscal policies meet. The industry, the businesses, and the consumers of a country are greatly influenced by monetary and fiscal policies combined together.

Nigeria has implemented a number of fiscal and monetary policies over the years to encourage and guarantee economic development. Both are frequently subpar. The monetary policies typically implemented by the central bank should, in theory, be consistent with the budgetary visions of the government. 

In addition to helping the financial sector develop, the alignment of monetary and fiscal policies would also guarantee price stability and consistent growth of the economy, according to economists. 

If fiscal and monetary policies are not coordinated, the budget deficit will grow, which also means that the public debt will not be sustainable, which could cause price instability, economists say.

The economic advantages of harmonising monetary, fiscal policies

A senior lecturer at the University of Lafia, Dr. Joseph Okwori, spoke to Dataphyte concerning the necessity of aligning monetary and fiscal policies. According to him, doing so would help the government to realise how crucial it was to harmonise these policies to promote economic growth and achieve macroeconomic objectives. 

He also noted that Nigeria’s difficulty in achieving this goal was due to the dearth of highly skilled economists who could ensure that macroeconomic goals would not conflict.

He emphasised that the next administration must prioritise and focus on key economic indices in order to reverse negative trendsin the economy. 

“What the current administration hasn’t understood is that politics and governance should be distinguished from one another. Politics should not be the primary goal of governance.

“Nigeria’s economic system has been hampered by the incompetence of its economic administrators, many of whom lack the training or experience necessary to determine whether a given policy is appropriate or not. The next government must also find a solution to this issue.” he emphasised.

He further said that while policies were not always bad, they occasionally lacked the necessary components to work, stressing that Nigeria needed to institutionalise its economic activities. 

According to an economist, Ms Alice Julius, “Nigeria’s past and present governments have ignored the significance of harmonising the policies. Typically, when monetary policies are implemented, fiscal policies that the government has put in place are ignored.”

She said that while harmonisation of policies would level the economy, they would also guarantee efficient economic management. 

In his research work entitled, “Harmonisation of fiscal and monetary policies in Nigeria,” Chief Executive Officer of Economic Associates, Dr Ayo Teriba, said the coordination of fiscal and monetary policies would help to prevent market tantrums, which were frequently caused by uncertainties about economic risks or those regarding the implementation of fiscal and monetary policies.