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Moghalu speaks on the Nigeria Fiscal and Monetary Polices

Fiscal policy is about how the government generates and spends revenue and how this pattern and process influences the economy. In Nigeria, most of the populace appears not to understand the difference between this government function and monetary policy which is the management of the money supply and price stability of a central or reserve bank.

Fiscal policy in Nigeria is the weakest aspect of economic governance in Nigeria. There are many reasons why this is so, but they are overarchingly of a political nature. Since fiscal policy is, at its core, about how to raise and spend money, taxation is, or ought to be, at the heart of fiscal policy. In Nigeria, this has not been the case. This fact is at the heart of the country’s economic growth challenge. The very issue which is that citizens will pay taxes levied by the government on their economic activities and the government will provide security and other public goods, has been relegated to secondary importance. Debt management is another important aspect of fiscal policy.

As in several natural-resource rich countries in Africa, fiscal policy in Nigeria for the past 50 years has been focused not on the efficient and effective generation and spending of tax revenue, but on rents from crude oil which have usurped normal tax policy in importance. This changes the dynamics of fiscal policy because the focus switches from the effects of policy on economic activity, to the risks of oil price revenue damage, and the overall distortion of governance and political power towards capturing and controlling natural resource rents for the purposes of patronage. This is the classic “gatekeeper state”. action is focused on guarding, controlling, and managing “the gate”.

The failure of fiscal policy in Nigeria has had five other fundamental consequences that have hobbled the ability to achieve sustained economic growth, development, and to achieve sustained economic growth, development, and transformation. One, both the federal government and the vast majority of state government have been unable to save, even as many other resources-rich countries in the Middle East, Asia, and Europe developed savings mechanisms such as sovereign wealth funds decades ago. As a result, our country has lost nearly two generations of developmental opportunity.

Two, the mismanagement of fiscal policy has resulted in the hemorrhaging of potential savings to the maintenance of a massive bureaucratic state. That state is one marked by a bloated and inefficient size of government at the national and sub-national levels. Between 70-90% of federal budgetary revenues are spent on paying salaries and on other recurrent expenditures.

culled from: Build, Innovate and Grow.. by Kingsley Moghalu

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