Ogho Okiti: Fiscal Side of Economy  Punching Below Its Weight

Dr. Ogho Okiti is the Chief Executive Officer, ThinkBusiness Africa. He is a former Managing Director of BusinessDay. He is an economist, strategic and policy thinker, who had previously served in the presidency as a special assistant to the Chief Economic Adviser to the President. In this Interview he speaks on the latest decision by the Central Bank of Nigeria to further tighten monetary policy. Excerpts:

What are your thoughts about the latest interest rate hike by the Monetary Policy Committeee (MPC)?

It was not surprising. If you read the personal notes of the MPC members explaining their decisions in February, you can tell that a lot of them see hike in the monetary policy rate (MPR) as key to tightening monetary policy necessary to bring inflation down. Secondly, they also see that raising the MPR would allow the CBN  align it with other  monetary tools and elements that would attract some foreign capital. Thirdly, you could actually tell that they were hawkish. I mean, most of them actually voted for raising interest rates by more than 400 basis points in February. So, given these three contexts, I was not surprised that they raised interest rate by another 200 basis points, though my expectation was a 100 basis points interest rate hike.

So, how long can we continue with monetary tighthening considering the effects on businesses and the economy?

In Nigeria, that is one question you get every time there is a raise in interest rate. There are two schools of thoughts on the issue.  Some hold the view that Nigeria’s inflation is always a monetary phenomenon. In that sense, it is excess liquidity that drives inflation. The second school of thought is that Nigeria’s inflation is structural in nature. By that, it is caused by the insecurity, infrastructure deficit, bad roads and all that and it has nothing to do with liquidity. However, my experience and research on Nigeria’s inflation suggests a combination of the two.

To directly answer your question, given current inflationary level and expectations, inflation may not peak until April or  May, perhaps in the region of about 33 per cent. So, I expect that they will hold raises in MPR after inflation has peaked. But that may not happen in the next MPC because it may not have peaked yet, so I expect them to hold rates from July 2024, all depending on the dynamics of inflation over the next few months. Even if inflation rises for another few months, the variance would not be as high as we have seen in the last six months. So, though I have provided a time frame of the next two MPC cycles before they hold rates, what is more important is that I expect them to hold rate as soon as inflation has peaked and expect to hold for another two to three MPC cylces while inflation begins to decline. Once inflation begins to come down for another two to three months, they would begin to ease monetary policy. But note that the most important reason for the interest rate hike this time is so that they can attract significant foreign capital. Of course treasury bills and bond rates are up.

That would enable them stabilise the naira. Once they can stabilise the naira, then inflation levels and inflation expectations begin to come down. In summary, I see tightening for another six to seven months and then we begin to see an ease, given that by then the Naira volatility would have eased and we would have started attracting some capital and then we can begin to ease monetary policy.

But beside attracting FPIs, the policymakers seem not to care about attracting FDIs because they are not creating the opportunity to incentivise FDIs?

Yes, at the moment you are attracting a significant chunk of FPIs because of the high treasury bills and bond rates and of course the interest rate. However, there is no trade off between FPIs and FDIs at the moment. The conditions, be it insecurity, infrastructure issue, those are fiscal policy issues and I believe also that there are measures in place by the government to address them. However, the most important issue in the Nigerian economy in the last six months is the naira volatility. When we begin to have some measures of stability in the value of the naira, then that allows the government to focus on all other issues that can drive long-term investments and long-term growth. But without first of all dealing with the issue of naira volatility, we would still be having the conversation even in six or nine months. So, first thing first. Now that I believe we are making progress on this first thing, I think we need to start moving to the second and third thing.

What do you think is the likely impact of monetary policy transmission on Nigeria’s huge informal sector?

It doesn’t have direct impact on their activities. However, that is why I keep going back to inflation and inflationary expectations. When you deal with inflation and inflationary expectations, which is what the CBN is dealing with at the moment, that would have implication for what happens in the huge informal economy that we have. Yes, it does not have direct impact because credit is not very significant in that area; most people in the informal sector invest from retained earnings, even if they invest at all; profit is not huge; they don’t borrow capital; they don’t collaborate, meaning that they don’t pool capital and many of them prefer to hold cash these days because of the experience they had from the naira redesign policy. So, if you look at the major elements, the main concern for them is inflationary expectations and inflation. 

So, what should the fiscal authorities be doing at this time to support what the monetary policy authorities are doing?

I talk to CEOs and I organise a monthly breakfast meeting for executives. I am always careful to stress that Nigeria’s long-term growth and economic stability hinges on getting fiscal policy right. In fact, I was speaking at the launch of the United Nations Development Programme (UNDP) Human Development Report in Abuja, recently, and I stressed that. We often make the mistake of putting enormous pressure and focus on short-term monetary policy measures, whereas the real work we should be doing should be on fiscal policy. I understand why and I will tell you why. Fiscal policy is difficult because it is political. Well, I think the government can start to make significant contribution by dealing with the escalation of debts and fiscal deficits first. If you look at what the Debt Management Office released last week, our debt has gone up again by another N10 trillion. If I was the President, my goal for 2024 would have been zero growth in debt. It is achievable and requires enormous sacrifices. However, if we don’t have that target, then we would not focus on reducing the growth of debt. The growth in debt from last year to the latest figure, we are talking about 10 per cent growth in debt. Now, let’s assume that zero per cent growth in debt is not achievable, why not limit it to about 2.5 per cent? What that does is that it eases the pressure on monetary policy. The source of our problem is not monetary policy, but fiscal. What is happening now is that because the fiscal side is not punching its weight, the monetary policy side is forced to overwork. 

Tell about Think Business Africa and the work you do?

Think Business Africa is a combination of all the work I have done in the last 20 years. It is in three major areas: Media services, Advisory – whether investment or economic and the third one is that we are working tremendously on Data. Data support business decisions in Nigeria and in Africa.