A high rate of growth in real GDP is the typical goal of most countries. However, the Phillips curve forces policymakers to tradeoff between rapid growth, the level of unemployment and a rise in the rate of inflation. Therefore, if you boost growth with fiscal measures of spending, borrowing deficit etc., you should accept a higher rate of inflation as a side effect.
Many African countries that face a situation of stalled growth tend to use accommodative monetary policy and lower interest rates as a complementary stimulant to the fiscal measures in boosting growth. The recent example of Ghana, where 7 aggressive cuts in interest rates were used along with other measures to spur growth, is a vivid example. Growth of 8.44% in 2017 was accompanied later by a higher rate of inflation and increased exchange rate vulnerability and weakness. The cedi fell 6.5% in the first three months of 2019.
The IMF has warned against unbridled use of lower interest rates as a catalyst of growth. Nigeria has been more cautious but also unsuccessful in stimulating growth to the required threshold of 4%.
Growth is also a function of productivity in addition to the fiscal impetus. Productivity in African countries has been constrained mainly by poor health care delivery and shortages of critical medical and paramedical personnel. In Nigeria, the doctor to population ratio is 1:2,500, much lower than the United Nations recommended threshold of 1:600.
There has been a recent exodus of doctors, nurses, pathologists, anaesthetists etc., thus bringing additional pressure to bear on the existing infrastructure and healthcare employees. Reasons for emigration, which is not confined to the medical profession, include the search for greener pastures, ability to provide good quality education for their children, etc.
In this edition of the FDC Bi-monthly publication, the FDC Think Tank not only takes a deep dive into both policy issues and infrastructure bottlenecks that constrain growth but also proffers some workable solutions to this myriad of problems that must be resolved if Nigeria is to reach its growth potential and the threshold for take-off.
Do enjoy your read!