December 27, 2017

Much to play for in 2018

We would all like to forget 2016 for the start of the recession and the deepening scarcity of fx. We could say the same for early 2017 before the creation of new fx windows by the CBN. Now a new year beckons, and with hopes of an improving economy.

This coming year may be written off in some quarters because of the lengthy run-up to the next presidential election in February 2019. This line of thinking takes two connected forms: that the run-up brings major macroeconomic slippage and that policymakers are too distracted by the politicking to pursue the FGN’s economic agenda.

We are skeptical about the first, having examined the data for government spending and different measures of the money supply in the build-up to the polls in April 2011 and March 2015. There was just the one clear example of slippage, a sharp increase in spending in Q2 2011 resulting from a rise in the national minimum wage. This was approved by the National Assembly and driven by the administration of the time. (We have to mention that organized labour has this year called for a substantial hike in the wage and that there have been hints from the presidency that an increment may be forthcoming.) If we are looking for slippage, we need look no further than Ghana, where alternate elections have become synonymous with twin deficits and IMF rescues.

The second reason underpinning the “lost year” theory for 2018 is that the government becomes distracted and takes its collective eye off the ball. Most governments, however, want to be re-elected and so come up with new initiatives to push development programmes and create jobs. The current administration is no exception, and its Voluntary Asset and Income Declaration Scheme (VAIDS) is an example of such an initiative.

It will be judged by the success of its expansionary fiscal policies. Indeed it is confident that 2018 will bring some rewards for those policies. Its wish list could include the completion of some road projects, a visible improvement in power supplies (off a low base, admittedly), a rise in rice and other farm output, job creation in the productive segments of the public sector such as education, some asset sales and perhaps some progress on the industry bill.

Gregory Kronsten
Head, Macroeconomic & Fixed Income Research

Source: Business Day, 27 December 2017.
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