joseph o sanusi : a central bank look at fiscal policy management in nigeria keynote address by dr joseph o sanusi, governor of the central bank of nigeria, at the seminar of the nigerian economic society on “ fiscal policy management in nigeria ”, lagos, 22 may 2003. * * * his excellency, the executive governor of lagos state, asiwaju bola ahmed tinubu, the president, nigerian economic society ( nes ), council members of the nes, mr. chairman, distinguished speaker and guests, ladies and gentlemen : i feel highly honoured to be invited as a guest of honour at this year ’ s seminar of the nigerian economic society on “ fiscal policy management in nigeria ” and for an opportunity to present this keynote address. the theme of the seminar could not have come at a more opportune time, as the outcome is expected to assist the government in policy fine - tuning and implementation in the context of its economic agenda under the next dispensation. this is in recognition of the fact that fiscal policy is a major dimension of an adjustment programme to ensure a stable macroeconomic environment and improved growth performance. suffice to say that sound fiscal policy management, predicted on consistency, sustainability, efficiency, accountability and transparency, is essential for accelerating the pace of economic recovery. since the 1970s, the government has been overly dependent on the oil sector as the most important source of revenue accounting for four - fifths of the total. consequently, fiscal operations have been influenced by the uncertainties of the international oil market. to minimize the destabilising influence of the volatility in the price of crude oil on government budgetary operations, efforts have been intensified since the 1980s to broaden government revenue base and enhance the contribution from non - oil sources. federal government expenditure has closely followed developments in the revenue flow, which has given rise to a boom / bust pattern. the rapid acceleration in government spending between 1973 and 1976 was so strong that the increased revenue earnings from oil over the period was more than absorbed, resulting in substantial deficits. it has been difficult to scale down expenditure whenever there was a significant deterioration in the oil market. the result was that government resorted to borrowing from the banking system, especially from the central bank, to finance the deficits, with adverse implications for domestic prices and the exchange rate. like most of the other oil exporting countries, nigeria experienced a sharp bust of inflation in mid - 1970s as public expenditure rose. it

by extension demand for commodities such as crude oil • second, how to ensure that nigeria ’ s economy is insulated from the adverse consequences facing emerging and frontier markets, due to rising rates in the united states. • third, what is the likely impact on the crude oil market from the sharp rise in us oil production, which currently stands at 11. 7m barrels per day and is likely to rise to over 14m barrels in 2 years? 12. as you may recall, nigeria ’ s political - economy experienced significant challenges over the last few years revealing its structural deficiencies particularly with regards to its dependence on crude oil, as a major source of its revenue and foreign exchange, as well as over dependence of our people on imported items even when these goods could be produced locally. the 60 percent decline in crude oil prices between 2015 and 2016 helped shape the trajectory of our economy, ultimately triggering the economic recession in q1 of 2016. road to recovery 13. the country ’ s overdependence on crude oil for fx revenue meant that shocks in the oil market were transmitted entirely to the economy via the fx markets as manufacturers and traders who required forex to purchase their inputs as well as goods, were faced with a depleting supply of foreign exchange in the country. the impact of this decline on our reserves was evident in the rise in the value of the us dollar relative to the naira ; and a rise in the consumer price index due to the increase in the cost of imported inputs and goods. in a bid to contain rising inflation and to cushion the impact of the drop in fx supply on the nigerian economy, the bank took three bold steps ; 14. first, the cbn tightened money supply in order contain inflation while improving yields in local bonds, which attracted the attention of foreign investors. second, we analyzed our import bill and encouraged manufacturers to consider local options in sourcing their raw materials, by restricting access to foreign exchange on 41 items. third, the investors and exporters fx ( i & e ) window was introduced, which allowed investors and exporters to purchase and sell foreign exchange at the prevailing market rate. 15. the impact of these three measures led to an increase in foreign exchange inflows into the country ; transactions in the i & e fx window reached $ 24 billion ( $ 6 billion net inflows ) in 2017 and nigeria ’ s foreign exchange reserves rose to over $ 48billion at the end of may 2018 from $ 23bn in october 2016 foreign