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Osinbajo calls for better monetary policies

As the Buhari administration takes stock of its achievements over the years, Vice President Yemi Osinbajo, has listed interventions in infrastructure, power, digital economy, ease of doing business and social investment, as some of the regime game-changing accomplishments.

Prof Osinbajo stated this on Monday in his presentation at the opening of the 3rd Ministerial Performance Review Retreat in Abuja.

He also talked about the need to ensure synergy between fiscal and monetary policy to better manage the economy and exchange rate concerns.

”Permit me to mention three challenges that we must confront going forward. The first is the synergy between fiscal and monetary policy. The failure of that synergy has led to unnecessary drawbacks in our economic performance and planning. What imports are eligible for foreign exchange must agree with the fiscal ambitions for manufacturing and industry. It cannot be the province of monetary policy alone or the province of fiscal policy alone”.

”The second is our exchange rate management, and this continues to be an issue. The exchange rate of the naira to convertible currencies continues to face significant downward pressures because demand substantially outstrips supply. That is just the reality. On one hand, we have tried demand management and rationing, which has not really worked because fixing the price while the parallel market reveals a massive arbitrage merely creates the opportunity for massive rents.  It will also compound the backlog of remittances for foreign businesses that want to repatriate their legitimate earnings”.  

”The discussion that we must now have and going forward is how best to manage the situation by finding a mechanism for increasing supply and moderating demand which will be transparent and will boost confidence”.

”I think that a more market-driven approach will be best; some price discovery within the context of a managed float is certainly required. Some efforts at controlled price discovery that had been made in the past include the Foreign Exchange Market (FEM), Interbank Foreign Exchange Market (IFEM), various iterations of the Dutch Auction System (DAS), Wholesale Dutch Auction System (W-DAS), Retail Dutch Auction System (R-DAS)”.

”While they may not have been perfect, it would appear as if the rules were clear and there was relative stability. When people know how they can access foreign exchange competitively, this will boost confidence and inward flows will increase”.

”My third issue is that we must focus on value addition and productivity in our economy. This happily is well articulated in our Medium Term Economic Plan 2021-2025. We must in doing so, loosen the generalized restrictions on trade”. 

”Blanket import restrictions are a dampener on economic activity because a lot of items that might be needed in the manufacturing process might be affected with a consequent negative impact on value addition in the economy”, the VP said.

He explained that importation itself was not the problem, saying it is the value added that matters.

The Vice President said that many countries of the world that manufacture are huge importers, and they import far more than Nigeria. 

”Let us take the example of garment manufacturing.  Bangladesh the world’s leading garment manufacturer does not produce most of the cotton it uses.  It only grows 2% of its annual cotton requirement.

In 2019 Bangladesh imported $11.8 billion dollars worth of textiles and apparel while it exported $37.94 billion dollars worth of garments in the same year. It is clear that there is nothing wrong with importation if you are going to add value and will export. I think that we should focus on doing that”, Osinbajo said.

Prof Osinbajo maintained that coherence and coordination are essential for effective policy implementation. 

He explained that it was critical for government policies to be consistent, or else different parts of the government could end up implementing diametrically opposed policies.

He praised President Buhari in this regard, citing the establishment of the Presidency Delivery Unit, the Economic Recovery and Growth Plan, the Economic Sustainability Plan in response to COVID-19, the National Development Plan 2021-2025, and ongoing work on the Nigeria Agenda 2050.

The Vice President said that the extensive consultative processes involved in developing these plan documents aided in improving understanding of government intentions and direction among public servants, the private sector, and the general public.

Writing by Annabel Nwachukwu; Editing by Adeniyi Bakare