FISCAL RECKLESSNESS AND ITS DIRE CONSEQUENCES ON NIGERIAN FOREIGN EXCHANGE

The free fall of Nigerian currency (naira) against dollar in recent past has left many in bewilderment as it portends gloomy state of economy for the country. Nigerians woke up in the middle of December 2015 to the reality of the fact that a dollar was unprecedentedly exchanged for N280 in the parallel market. This has strong policy implication for the manufacturers, the academics, the policy makers, as well as the economy at large.
Currency devaluation or depreciation as the case may be is desirable for economy that produces value added tradable goods for export whose demand is price and income elastic. It works best with forward looking (export-dependent) countries who want to tinkering with their local currency in order to make their exports more attractive and competitive in the global market. For instance, by making yen almost worthless, Japan was able to take over automobile market as it was cheaper for Americans to buy Honda, Toyota, Mitsubishi and other range of Japanese cars that took the world by storm and do away with American home made Ford, Chevrolet and other cars. Morris Minor and Jaguar i.e the British cars could not as well compete in price with Japanese products courtesy of devaluation. This explains the shift of British economy to service sector. The trade imbalance against America in favour of China is as a result of the devaluation of Chinese currency (yuan) because of American insatiable appetite for cheap Chinese imports.
Devaluation on the other hand, is a curse for a country like Nigeria and a journey into a perpetual retrogression and underdevelopment. Nigeria produces barely nothing for export except crude oil and raw primary products whose price is not determine by Nigerians. It also import everything from luxuries to matches, toothpicks, fruits and other food items that could be produced for export here. What then is the sense in devaluation? It should be noted that in the 1970s and early 80s when naira was stronger than dollar, Nigeria witnessed massive investment in all sectors such as paper mill; petrol chemical plants; refineries; many industrial estates; steel rolling industry among others due to cheap importation of capital equipments, industrial goods that gave birth to many industries and spurred growth. Many social overhead capital SOC were invested in such as massive road and rail network, flyovers, dams, irrigation and heavy investment in education where many tertiary institutions were established.
Fiscal recklessness and inability of the government to control the pattern of public and private consumption of foreign made goods is adjudge causes of the depreciation of Nigerian currency. Nigeria elites have developed insatiable appetite for foreign made goods. Money laundering and tremendous capital flight in form of medical tourism and other frivolities have taken another dimension in the country. As many state governors in Nigeria find it laborious task to pay N18,000 minimum wage for their workers, Nigerian lawmakers find it easy to buy 2016 latest SUVcars that cost N4.7billion for their members. The implication of this is that besides the fact that Nigerian lawmakers are exporting employment to such car producing nation, demand for dollar exchange rate will be on the high side and this puts more pressure on naira and thereby leading to further depreciation.
Those syndicates and economic criminals who parade themselves as politicians and elite in our society have dealt a big blow to the commoners as the paltry bread in the mouth of the masses are unabatedly shrinking via the inflationary impact of exchange rate depreciation. The exodus of manufacturing companies out of Nigeria is largely due to the fact that exchange rate needed to import industrial equipment and raw materials are source for at a high cost, translating into high cost of production and thereby, non patronage of their goods even in the ECOWAS markets. This consequently leads to massive unemployment in the land and heralded by an upsurge of criminal tendencies among the army of unemployed youth.
In conclusion, for Nigeria to assume her place in the committee of a developing and emerging economies, fiscal recklessness must give way for fiscal prudence and strong political will. The pattern of public and private consumption must be controlled towards developing appetite for locally made goods. Rent seeking tendencies among the politicians whereby they earn a jumbo pay outrageously above their peers in other developing and emerging economies must be stopped. This will save resources for capital investments. Monetary policy alone cannot do the magic as it seems the monetary authority has exhausted all policy weapons aimed at combating further depreciation with the problem persist, but both monetary and fiscal policies must be conducted to play a complementary role.