The present economic downturn or depression demands urgent remedy so as to give the citizens a new lease of life, and usher in a period of consolidation. Going down the memory lane, it would be recalled that The Great Depression of 2007-2009 ushered in untold hardships and economic imbalances globally. What is happening presently is a mirror of what was experienced during that period. And quite optimistically, economies across the globe managed to come out of that depression. So undoubtedly, with all cards put on the table, we should be able to equally come out of the present predicament.
As indicated below, the recommended economic policies are based on lessons learned from the Japanese economy:
- The Nigerian Central Bank should establish a new financial stability department. This department will look primarily at the inflow and outflow of the nation’s currency and how it is performing as against other currencies; making sure that foreign currencies are ready available for local businesses in all commercial banks at a flat rate. Also, CBN should put a taskforce that will oversee the activities of the commercial banks as to how hard currencies get to the black market. By so doing, they can checkmate the activities of banks and close up loopholes in the banking sector thereby making it difficult for black market traders to have access to foreign currencies.
- Individual families need to have diversified sources of income, which is an unnoticed lesson learned from developed countries. As a result, it is necessary for each Nigerian family to have at least two revenue streams. But, the current 9 to 5 syndrome (workers resumes by 9AM and closes by 5PM daily) needs to be looked into so as to make the Nigerian workforce be able to pick up another job for multiple income sake. These are common practices in Europe, The US and Canada which is ideal for the current dispensation in the world today. Labour laws need an urgent review in this case in Nigeria.
- The government should work with international technical experts to learn from their experiences and insights, which will be used to develop policy frameworks for potential financial crises. The policy framework can gradually grow to include four pillars:
(i). Banks that are capital-deficient should be encouraged to restructure and raise additional capital from private investors rather than the government. (When they borrow from the government, they show a lack of caution.)
(ii). The authorities of an insolvent (bankrupt) bank should consider a wide range of options, including assumption by a stronger bank with financial assistance through the deposit insurance scheme, the formation of an asset management company to separate bad assets, and the establishment of a bridge institution to keep the failed bank’s function alive.
(iii). When banks face liquidity constraints with systemic repercussions, the central bank should act as a lender of last resort. The bank must be able to give the Central Bank of Nigeria collateral.
(iv). When banks are having trouble raising capital on the open market, the government should consider inserting public cash. Such recapitalization should be funded from the state budget, and the authorities should be committed to overseeing the recipient bank to ensure that it fulfills its obligations and that its existing shareholders do not suffer losses.
CBN should give out loans to Banks at zero percent interest rate
The apex bank in the land should give out loans to banks at no interest rate and admonish all banks to do the same especially for SMEs and startups companies. And if the banks are going to charge any interest on loans (because they are a profit oriented businesses too) it should be 4% at most with no collateral of any kind from the business owner(s) vying for the supposed loan. This is one of the key approaches of the Keynesian Model of economic recovery.
Some policies, such as monetary policy, are also important and they include, but not limited to the following:
(i). Medium and long-term monetary policy: These necessitate addressing financial sector depressions, particularly in terms of the rapid disposition of non-performing loans (NPLs). Competitiveness and economic regeneration should be prioritized in the long run. To improve the economy’s flexibility and competitiveness, the banking sector must be reorganized, and different economic rigidities must be removed.
(ii). Monetary policy in the short term: This must be focused on deflationary policies, such as monetary and/or fiscal policies, to deflate the economy. In addition, to revamping the banking sector, a “bridge bank scheme” should be implemented. There is a chance that the “bridge bank scheme” will exacerbate the debt crisis. This is true in cases where problem banks are closed or restructured but the most efficient banks in the system are retained. On the one hand, it will lower total bank lending, but on the other, a portion of the financial industry bailout/cleanup will unavoidably be carried by taxpayers. Aggregate demand must be boosted in the short term.
(iii). Tax payment statements may lack credibility in some jurisdictions when the state government has failed to pay even the full salary of employees. When there is strong pessimism about growth prospects on the one hand, and understanding that households and other under-growing businesses will bear at least some of the burden in cleaning up the financial sector on the other, this lack of credibility is especially prominent. As a result, in order for tax payments to be effective, the government must have effectively executed its responsibilities.
In conclusion, due to the limited time available, the different options for preventing economic disaster and regaining economic buoyancy in Nigeria should be implemented quickly. If all of the listed proposals are implemented by the government (public) and private players, Nigeria will be able to resurrect back on to life in terms of economic growth and development.