Buhari as the quintessential Obama (2)
Some may wonder how the Buhari administration could possibly finance stimulus spending, considering that the administration not only inherited an empty treasury, but also face dwindling oil revenue and a very volatile global oil market.
Nigeria could follow the example of Asian countries that financed their stimulus programmes through domestic borrowing (mainly by issuing government bonds). Borrowing money domestically in one’s own currency is not nearly as problematic as external borrowing.
For instance, India’s debt is about 80 per cent of GDP, but 90 per cent of it is owed to domestic creditors. Of course, I do recognise that financing stimulus spending via domestic borrowing comes with a price: it may crowd-out domestic private investment by raising interest rates. But this would be a temporary hiccup, as the increase in aggregate demand generated by stimulus spending would subsequently crowd-in investment in the production of goods and services. This ultimately will generate employment opportunities
One of the usual concerns about stimulus spending is the risk of inflation. But unemployment, economic disempowerment and youth restiveness are bigger threats to the stability of the Nigerian economy than inflation – at least in the short to medium term. The youths that took to the streets in Tunisia and Egypt would have been less vociferous in their demands for regime change if the problem were merely inflation.
In contemporary Nigeria, inflation is a lesser evil than prolonged unemployment, especially in the absence of social safety nets. Given the huge slack resources in Nigeria, it is doubtful that stimulus spending would precipitate hyperinflation in the short to medium term.
In any case, the Central Bank of Nigeria has the necessary monetary instruments for reigning in inflation, should that become a challenge. It is noteworthy that the U.S. has maintained a near zero real interest rate and very low inflation rate for the past five years or so, despite Obama’s stimulus spending.
Even more successful East Asian countries have implemented economic stimulus programmes to sustain growth and employment. For example, China took decisive steps to stimulate its economy and minimize the impact of the 2008-2009 global economic meltdown.
In 2009, the Chinese government spent almost $600 billion on infrastructure, subsidies and social safety nets. A major goal of this stimulus spending was to reduce the unemployment rate by targeting a growth rate of at least eight per cent.
Part of China’s stimulus programme was designed to steer the country away from an investment-based economy to one driven by consumption.
One other lesson Buhari should learn from Obama is that it is better for a leader to stick with his or her convictions, no matter how unpalatable, rather than let opinion polls or emotional sentiments drive their economic policies.
Some pundits were dismissive and derisive of Obama’s stimulus strategy when it was launched in 2009. Back then, many described him as a one-term president who will be defeated handily by even the most inept Republican candidate in the 2012 presidential election. The rest, as they say, is history. Obama stuck with his stimulus strategy and eventually prevailed.
At a recent rally in Minnesota organized to showcase the good news about the U.S. economy, Obama proudly proclaimed that “Middle Class Economics does work!” It remains to be seen how history will judge the Buhari presidency, and whether he indeed will be the quintessential Obama.
• Onyeiwu is a Professor of Economics at Allegheny College, Meadville, Pennsylvania, USA.
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