Nigeria 's potential for growth and poverty reduction is yet to be realised. A key constraint has been the recent conduct of macroeconomics, particularly fiscal and monetary policies. This has led to rising inflation and decline in real incomes. What is more, the public delivery services are poor and deteriorating. Moreover, there has been little transparency and accountability in the management of public resources. An objective indicator of the traumatic experience of the Nigerian economy which at the inception of the present administration, was the persistent weak GDP growth and declining productivity. This was a manifestation of a demoralized workforce coupled with corruption that characterized government business. Lack of transparency and accountability in the execution of public sector activities was very pronounced in all tiers of government. Equally glaring is the poor socio-economic condition of the people. Poverty rate remained very high, with about 70percent of the population estimated to be living below the $1 per day consumption bar.
National economic management became a Herculean task, as the economy has to contend with volatility of revenue and expenditure. The widespread lack of fiscal discipline was further exacerbated by poor co-ordination of fiscal policy among the three tiers of government. Also, there is a weak revenue base arising from high marginal tax rate with very narrow tax base, resulting in low tax compliance. These have been curbed with the introduction of a new integrated tax system.
Other gray areas of the national economy include poor infrastructure, weak public service delivery and a generally weak environment for private sector development. All of these called for the recent exercise embarked upon by government for the privatization of different sectors of the economy. The launching of Transnational Corporation of Nigeria (Transcorp) Plc. by President Olusegun Obasanjo which is chaired by the NSE Director General, Dr. (Mrs) Ndidi Okereke-Onyuike; the directive of the Governor of Central Bank of Nigeria Prof. Charles Soludo on the current Banking sector consolidation drive are other examples of government influence in public policy formulation at touching the wide spectrum of the Nigeria public. Thus, the issue is not only of improving economic management but also one of improving overall governance.
The Nigerian people aspire to and desire to move out of poverty within the framework of a stable and rapidly growing economy. This is certainly feasible if adequate policies are put in place and sustained. Partially and poorly implemented reforms will not serve to reserve current trend. Thus, the government is at crossroads.
It faces a choice between improving the welfare of the populace and allowing the situation to deteriorate further. In view of the above, the federal government of Nigeria , through the Central Bank of Nigeria , has formulated various monetary and fiscal policies aimed at attaining macro-economic management. For instance, according to the Central Bank of Nigeria, CBN's annual report and statement of account 1984 part ii stated the government monetary and fiscal policies objectives as: “The objective of monetary policy in 1984 were to be the backlog of accumulated trade debt and achieve substantial improvement in balance of payment position, stimulate domestic production, especially food and raw materials, reduce the rate of inflation in the economy and mobilize increased domestic revenue as well as external financial resources”.
In the area of fiscal policies, measures were taken to ensure effective protection of local raw materials, encourage the greater use of local raw materials to generate increase in government revenue, curtail expenditure and minimize budgetary deficit financing. In theory, the ‘principal-agent' principle governs the relationship between government and the governed. Consequently, budgeting process under democracy should satisfy the conditions of broad-based real participation and consultation, transparency and accountability, if the government must truly act as an agent of the people (Ariyo, 2000). Budget in government is the statement of expenditure preferences of government expressed in monetary terms and subject to the constraints imposed by the environment, indicating how the available resources may be utilized to achieve whatever the dominant individuals within the political leadership agree to be the government priorities (Omolehinwa, 2001). Against the backdrop of several political and socio-economic problems facing the economy, government decided to fashion out the objective of monetisation in a manner that could resolve some of the teething problems of the nation.
As a macro-economic tool, monetary and fiscal policies formulated by the government also have a great influence on the budget and developmental plan. Going back memory lane, the first independent budget of 1960 spelt out the objective as: “ the achievement and maintenance of the highest rate of increase in the standard of living and the creation of necessary conditions to the end”. The objective has been expanded and elaborated in the next and subsequent development plan. In the second and third plan, for instance they were stated as: “ To establish Nigeria firmly as a united, strong and self-reliant nation, a great and dynamic economy, a just and egalitarian society, a land of bright and full opportunities for all citizens and a free and democratic society. In view of the above, more determined efforts have continued to be made by the Nigerian government to eradicate the problems including the unacceptable high rate of inflation and unemployment, low productivity, balance of payment deficit, low value added and a disturbingly doubtful $30 billion external debt.
CHALLENGES AND PROSPECTS
THE MONETARY POLICY
The monetary policy is an economic policy which refers to the combination of measures designed to control in supply of money and credit condition in an economy for the purposes of achieving macro-economic goals of full employment, economic growth, stability of prices and wealth, efficient resources allocation, favorable balance of payment and increase in industrialization to mention but a few.
To attain the aforementioned objectives, the Nigerian government have used some important and potent tools such as Open Market Operation (OMO), cash reserve requirement, interest rate policy, discount window operations, credit ceilings, stabilization securities, special deposit, sector credit allocation etc.
The open market operation is the buying and selling of government securities with a view to influencing the cash flow of the banking system. Purchases increase while sales contract the cash base. As a strategy for controlling the excess liquidity in the banking system, the Central Bank of Nigeria reactivated the repurchase agreement (REPO) with discount houses, which was suspended in 1995.
The government, through the use of cash reserve requirement, has influenced the level of the liquidity in the economy. Banks are required to maintain from time to time a certain percentage of their capital base with the CBN this is the effect of the mega banking in order to provide fund mobilization for both local and international market to aid investment in the economy.
The CBN through the discount window especially through minimum rediscount rate (MRR) has influenced the interest rate policy in order to attain macro-economic objectives. For instance, the minimum rediscount rate was raised from 13.5% in December in 1998 to 20.0% in April 1999 and later lowered. Recently, it was increased from 15.5% to 16.5%, which is a step in the drive to tighten liquidity positions but unfortunately it is presently 3.5% .
Besides, the use of credit ceilings cannot be overemphasized. The Central Bank of Nigeria has tied the Commercial Banks and Merchant Banks to the apron string domestic economy.
THE FISCAL POLICY
The fiscal policy, as an economic measure refers to the deliberate use of government spending and taxes to achieve macro-economic growth. Put differently, it describes the combinations of measures in government revenue and expenditure to achieve overall economic objectives of a nation. The fiscal policy used includes taxation, public expenditure, relief, concessions and fiscal incentive policies to mention just a few.
The government fiscal policy measures can be categorized into two: Automatic Stabilizers and Discretionary Fiscal Policy Measures. The Automatic stabilizers are government spending or taxation actions that take place without any deliberate government control and which tend to dampen the business cycle. Whereas, the discretionary fiscal policy are government spending and taxation actions that have been deliberately taken to achieve specified macroeconomics goals.
One of the major problems experienced by the Nigeria government is the persistent increase in price of goods and services without corresponding increase in productive base. To correct this, the Federal Government curtails the growth of government spending, raises taxes, especially for middle and upper income earners.
The nation's worst socio-economic problem, unemployment, is characterized by low standard of living and poverty. In an attempt to solve the problem of unemployment, the Federal Government has established non-profit making organizations like the National Directorate of Employment (NDE), which is aimed at assisting the unemployed in search of gainful employment, Poverty Alleviation Programme introduced by the present government. The Global System Mobile telecommunication, GSM, has no doubt created unprecedented employment opportunities for thousands of Nigerians, and the market is opening up by the day.
The Nigerian economy, for about three decades, has witnessed economic retardation. This is due to low productivity, political instability, high rate of population growth rate, rising unemployment, external dependence etc. In view of this, the federal government has adopted various fiscal policies. But for the first time after many years, Nigeria exceeded the growth rate of 5.5percent as against the projected 5percent in 2004.
The balance of payment position of Nigeria within the last two decades has been more chronic. For instance, in 1995, Nigeria 's external payment position was at a deficit of $2774.4million, which reduced to $761.0million in 1996. In order to revamp the economy, government increased traffics on non-essential goods and services that can be produced locally to correct balance of payment deficit, and granting tax reliefs, incentives to local entrepreneurs so as to stimulate and promote the local industries and increase exports. With the improved image of the country in the international communities and the Central Bank of Nigeria's directives for all financial institutions to engage the use of armoured vehicles, a Spain-based Nigerian, Mr. Fredrick Airemhon, on 1 st of July 2005, launched the first armoured vehicle fabrication company with the aim of reducing foreign goods and services to focus more on home production and provide employment opportunities.
RECOMMENDATIONS AND CONCLUSION
In view of the aforementioned problems of the Nigeria fiscal and monetary policies, I recommend that Public Sector Development Programmes should guide our national economic agenda. This economic agenda should have as its objectives, the improvement of the general well being of the entire citizenry. The following policy measures should be adopted: Diversification of the economy, Government should continue to modify the policy instruments and ensure the maintenance of financial stability, the CBN should be granted autonomy to operate in line with current global trend, Government should examine the interest rate policy necessary to improve the allocation of credit and development of the informal financial market and Exchange rate reform to enhance monetary policy management should be adopted.
In conclusion, to revive the growth of the Nigerian economy, deeper reforms of budgetary planning, expenditure control and transparency would be needed to address the structural weaknesses in public resource management, expenditure priorities formulated should not only appear on paper, they should be adequately implemented.
It is my candid opinion that if the above recommendations are strictly adhered to and public officers can discourage corrupt practices to the barest minimum, the Nigerian economy could witness growth, rapid development and better standard of living for the teeming population and serve as a model in Africa.
Fiscal and Monetary Policy By Jelenke Taiwo Accounting Lexicon (Official Journal of Accounting Department of Lagos State University LASU 2002.
“Federal Budget Performance in Nigeria : A critical Review of 2001-2002” The Nigeria Accountant Semiu Babatunde A. and S.S.S. Arowomole.
“ Monetisation of Fringe Benefit in Public Service: Issue of Policy Implementation, Monitoring and Strategy” The Nigeria Accountant Francis Ojaide
Editorial Assistance provided by Mr. Ope Somefun, a seasoned production journalist.