The Managing Director, Financial Derivatives Company Limited, Bismarck Rewane has said that confidence of domestic, diaspora and foreign investors have in an economy determines the flow of capital to such economy.
Speaking at a virtual Nairametrics Economic Roundtable themed “How to get out of the economic crisis”, he said the rate at which the naira is exchanged against global currencies is not as important how the exchange rate trades among Nigeria’s trading partners.
“People keep on saying what is the exchange? That is not important. What is important is how is your exchange rate determined and how is it performing relative to your major trading partners,” he said.
He explained that running a fiscal deficit is not a bad thing in itself as it could be a countercyclical move that could reflate the economy during recession.
He said that budget remains a viable tool for government to efficiently manage the economy, as seen in the U.S where budget was used to push the economy to sustainable growth.
He said a market-determined exchange rate is possible for Nigeria.
He said that there was need to always keep the budget within plan for an economy that is in recession.
He said Nigerian economy is not in crisis, but only has a problem that can be fixed with appropriate monetary and fiscal policies.
“When an economy is in recession, the thing to do is to spend more and keep the budget within the plan. The question is whether the deficit gives you the desired economic outcome. What is different between a problem and crisis? The crisis is crucial but decisive moment”.
“Crisis could be as a result of persistent problem, that leads to sharp deterioration of the condition of the victim. When you have problem, that is badly handled, the problem will lead to a crisis,” he dded.
He said Nigeria’s economy will surmount its challenges and come out stronger once the right things are done.
In his presentation, Partner, FS Leader and Chief Economist, PwC, Andrew Nevin, said the exchange rate, fuel subsidy, and power sector need total structural and policy reforms due to distortions in the sector.
He said that the CBN’s target is to operate a market-determined rates, which has not been implemented.
On fuel subsidy, he said the Petroleum Products Pricing Regulatory Agency (PPPRA), Nigeria spent about N10 trillion on fuel subsidy between 2006 and 2018.
On power, Nevin said Nigeria’s power and electricity industry is challenged with low electricity generation, poor transition infrastructure, liquidity issues, high electricity consumer debts among others, due to non-cost reflective tariff.
