Abuja – Prof. Montek Ahluwalia, former member of Indian Cabinet, has advised the Central Bank of Nigeria (CBN), to unify the exchange rates in order to attract more Foreign Direct Investments into the country.
Ahluwalia, also a former Deputy Chairman of India’s Planning Commission and guest speaker at the just-concluded two-day National Economic Council Retreat in Abuja, gave the advice during interview with State House correspondents.
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He said that in spite of the nation’s economic challenges caused by the sharp drop in global oil price, there was also the problem on the foreign exchange market in the country.
“I think you also have a problem on the foreign exchange side; as you know the naira is under pressure.
“You have an official rate and a much more depreciated free market rate.
“My view is that one should move to unify these rates’’, he said.
Ahluwalia said there could be various ways of unifying the rates depending on the approach the CBN would want to adopt.
He, however, noted that “generally, to run a country with an official rate and a much more depreciated market rate introduces a lot of distortions.
“Sooner or later, people think that the rate is going to go to the market rate and in anticipation of that, money that will come in will wait until they think they will get a better rate.
“That is another important area in the microeconomic side’’, the planning expert added.
Ahluwalia, however, observed that in spite of the economic challenges the country’s sovereign debt to gross, domestic product (GDP) ratio at 16 per cent is among the best in the world.
“I feel that as you raise tax revenue which your government wants to do, it may take time for the revenue rise to occur.
“Your big strength is that you have very low debt to GDP ratio which I think Nigeria’s sovereign debt to GDP ratio is about 16 per cent.
“Most other countries will be around 25 per cent and 28 per cent and even up to 40 per cent, which is not regarded for a developing country to be bad’’, Ahluwalia said.
According to him, the problem in Nigeria is that it has not generated the revenues needed to sustain higher debt.
“But if you are taking the steps on the revenue side, you could perhaps anticipate the success of those steps and borrow more in order to maintain expenditure.
“And I think if you want to get growth back, if you want to generate employment which is necessary for younger Nigerians, some expansion of investment in infrastructure is crucial’’, he said.
He said attention should be on both national and state level infrastructure in order to engage the youths in modern sector employment and not just informal sector employment.
Drawing from the Indian experience, he said development of rural roads induces huge increases in rural prosperity which should be the case in Nigeria.
The don said that while in the olden days, infrastructure was built by the public sector, now, for many kinds of infrastructure, it is possible to do it through Public Private Partnership (PPP).
Ahluwalia noted, however, that for PPP to work, there should be a PPP law “which makes it clear that this is part of government’s strategies.’’
“If Nigeria has such a law, investors particularly foreign ones, are more reassured that if they invest, it is part of a legitimized framework that people will not subsequently question.
“Because whenever you bring the private sector into something that was earlier done by the public sector, there is a lot of suspicion.’’
He noted that the global oil price collapse had led to very big decline in growth in Nigeria but said the trend could be reversed through diversification into agriculture and solid minerals.
“Non-oil revenues in Nigeria are too small; even if you compare Nigeria with other oil exporting countries, you don’t have enough non-oil revenue.
“So, the highest priority from a micro-economic point of view will be to develop the non-oil revenue base.
“The federal and state governments can do something about that in their own areas.
“But I feel that your Value Added Tax is at a very low rate, it has lots of exemptions and also the coverage is quite limited.
“It has not covered many people who should be covered. So, I think the top priority should be to modernise and improve the VAT so that it becomes more bigger source of revenue in the years ahead’’, he said.
The development specialist said that when the country was faced with huge expenditure demands, one of the ways to generate revenue was to reduce energy subsidies.
He noted that most of the 36 states made points about expanding infrastructure, such as health, education, etc, but stressed that “Nigeria has very high energy subsidies.’’
“Many countries have had high subsidies and everywhere it is agreed that we should reduce these sharply.
“The beneficiaries of energy subsidies tend to be high-income individuals who can afford plans that use energies.
“Some mechanisms must be found to reduce energy subsidies’’, Ahluwalia advised.
On cutting down cost of governance, he said such expenditure could not be avoided if the need for quality education, healthcare and other services were to be addressed.
“If you go into things like education and health and even policing and security and justice delivery, you will have to hire a lot of people to deliver these services.
“The real problem is that the government doesn’t have enough resources. Your tax revenues at the ratio of the GDP is at half what they should be.
“So, if you can mobilise those resources, you can meet these expenditures’’, he added. (NAN)