Report harps on development financing in Nigeria, others
With projections that capital flows to oil-exporting countries may decline further or even worse, latest report from the Brookings Institution has highlighted the need for tighter financial conditions and decisive domestic adjustment as policy options to address growing financing needs in Nigeria and other African countries.
According to the report titled, ‘Foresight African: Top priorities for the Continent in 2017’, this year is the time to use the oil shocks to not only implement the right macroeconomic policy mix but also to put oil-dependent economies on a better footing. This is to enable them make significant progress towards the sustainable development goals (SDGs), adding that there is really no other choice as oil prices are expected to remain low for long.
Indeed, the report stated that while short-term adjustment will only be a “pain medicine”, sectoral policies, including in agriculture, will be needed to diversify oil-rich economies and strengthen their structural transformation as well as accelerate the pace of reforms that do not require much funding such as improving the efficiency of spending.
Director and Senior Fellow, Africa Growth Initiative, Global Economy and Development, Brookings Institution, Amadou Sy, explained that with indications showing that investors are not as eager to invest in many oil-exporting countries as in other African countries, there is need to move beyond doing business as usual.
“The typical medicine against a negative oil shock for oil exporters is a combination of fiscal contraction, currency depreciation, and monetary tightening (to limit inflationary pressures). In addition, state-owned enterprises (SOEs) and the financial sector are closely watched to avoid any bad surprises such as the materialisation of quasi-fiscal liabilities and higher nonperforming loans from exposures to oil and gas and currency mismatches. To make the medicine easier to ingest, existing policy buffers can be used to smooth the adjustment.
“Reasons for not achieving the right and timely policy mix have been numerous and include treating the oil shock as a temporary shock rather than a permanent one, long delays in coordination between ministries and in execution, and difficulty in managing the political economy of reform”, he added.
Sy however stated that the current shock and its negative consequences on the economies and lives of the citizens of African oil-exporting countries can be an opportunity to “fix the machine” noting that the sharp fall in oil prices has highlighted the fragility of the current growth model.
President and CEO, Overseas Private Investment Corporation, Elizabeth Littlefield, added that the continent needs foreign investment to create jobs and opportunities, boost economic growth, drive innovation and build stable markets.
“2017 is the time to accelerate the implementation of the domestic revenue mobilisation agenda, which was much heralded in the 2015 Addis Ababa Action Agenda, and improve the taxation of the non-oil economy, consider the merit of increasing the VAT (value-added tax) rate, and revisit poorly targeted tax exemptions and subsidies.
2017 is also the time to ensure that capital expenditures (which are still needed to finance the large infrastructure gap) have a value for money and outcomes that are really growth enhancing. 2017 is the time to revisit how current expenditures in the oil economy were part of an ineffective social contract where oil windfalls would result in a higher wage bill and increased government spending for goods and services,” Sy added.
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