2023 in review: Nigeria’s fiscal & monetary policy mix

As 2023 gradually comes to a close, the focus on Nigeria's fiscal and monetary policies intensifies. The right combination of these policies is crucial for stimulating economic growth in the country. Dr. Muda Yusuf, Director at the Centre for the Promotion of Private Enterprise, recently shared insights on the policy measures undertaken by the government and the impact witnessed so far this year. Reflecting on the initial part of the year, Dr. Yusuf highlighted the transition in political and economic governance that occurred in June. This transition brought about a new framework for the coordination of policies in Nigeria. With the appointment of a coordinating minister for the economy, there is a renewed commitment to ensure proper harmonization of fiscal and monetary policies. The Central Bank of Nigeria (CBN) has also reiterated its focus on monetary policy issues, particularly emphasizing price stability. The commitment to comply with the CBN Act, especially regarding the monetization of fiscal deficits, indicates a step towards effective policy coordination. Looking ahead, Dr. Yusuf outlined several risks and challenges facing Nigeria. The 2024 budget, with revenue projections significantly exceeding previous years, poses a challenge, especially considering the gap between revenue expectations and actual figures. The potential for deficit financing may lead to tensions between fiscal and monetary authorities. Addressing these challenges will be crucial to avoid overheating the economy and escalating debt burdens. Discussing the need for a balanced approach to fiscal and monetary policies, Dr. Yusuf emphasized the importance of revenue optimization and expenditure management. While progress has been made in revenue enhancement through subsidy removal and forex convergence, attention must also be directed towards curtailing current expenditures and boosting capital spending, particularly in infrastructure development. Balancing these aspects is essential for driving economic growth and competitiveness. Dr. Yusuf further delved into the performance of individual entities, including ministries, departments, and agencies, the CBN, and the Tax Reform and Fiscal Policy Committee. Ensuring accountability and efficiency in revenue generation, as proposed by the committee, is crucial for bolstering government finances. The need for clear monetary policy signaling and addressing governance inefficiencies were also highlighted as key areas requiring attention. Regarding the Naira's value against the US dollar, Dr. Yusuf emphasized the importance of adequate foreign exchange supply to stabilize the currency. While assurances have been given by government officials and the CBN, concrete steps are needed to enhance forex liquidity and support the Naira's value. As Nigeria navigates the complexities of its fiscal and monetary landscape, effective policy coordination, revenue optimization, expenditure management, and forex stability will be paramount in driving sustainable economic growth and stability in the country.