President Tinubu’s Policy Advisory Council's Recommendations for Sustainable Economic Growth

The policy advisory council of President Bola Tinubu has released a report titled 'Policy Advisory Council Report: National Economy Sub-committee,' wherein it has emphasized the need for the federal government to expedite the implementation of the Nigerian Capital Market Master Plan. This action is deemed crucial for strengthening the capital market and mobilizing capital for development.

Addressing Macroeconomic Pressures

The council has highlighted the detrimental effects of macroeconomic pressures and challenges in the operating environment on the performance of the capital market. Poor liquidity has been a direct consequence of these factors. To counteract this, the council recommends that the government issue long-term, high-yielding debt securities like Special Purpose Bonds specifically for dedicated projects and initiatives such as agriculture and industrial-related ventures.

Furthermore, the council urges the government to facilitate increased participation of pension funds and insurance companies in the capital market. Collaboration with fintech companies is also encouraged to introduce new capital market products, including multi-issue structured products and special financial bonds that would benefit small and medium-sized enterprises (SMEs).

Encouraging Environmentally-Friendly Investments

Incentivizing the issuance of Environmental, Social, and Governance (ESG) compliant products is another suggestion put forth by the council. This move would promote environmentally-friendly investments and sustainable practices. Additionally, the council advises the government to consider issuing SUKUK bonds as a strategy for raising capital for government projects. Collaboration with the Securities and Exchange Commission (SEC) would ensure the tradability of these certificates on the stock market.

To protect shareholders and investors and improve overall market integrity, the council emphasizes the need to strengthen and enforce regulations. It suggests stringent measures to promote corporate governance and ethics while discouraging market malpractices. Such actions are expected to foster improved compliance among market participants.

Monetary Environment for Growth

The council also acknowledges the administration's commitment to addressing the issue of multiple exchange rates and the disparity between the official and parallel markets, as stated in the President's Inaugural Speech. To create a monetary environment that drives growth, the council offers recommendations to the government.

Reviewing External Reserves and FX Rates

Firstly, the council advises the government to review the balance sheet of the Central Bank of Nigeria (CBN) to ascertain the true position of the country's external reserves. It also suggests modeling the potential impact of a harmonized exchange rate regime on the economy and estimating the required foreign reserves. This estimation should be based on factors such as the backlog of unmet foreign exchange demand and associated obligations, projected future foreign exchange demand, and an additional contingency reserve.

To aggressively grow foreign exchange supply and build external reserves, the council urges the government to secure funding support from multilateral agencies and development finance institutions (DFIs) at concessionary rates. It estimates that reserves of at least $50-$60 billion, with a monthly inflow of $6-$8 billion from export earnings and other forms of capital inflow, would be necessary to defend the Naira at an exchange rate of N500-N600/$.

In addition, the council suggests removing all foreign exchange intermediation windows and allowing banks to serve as primary dealers, supplying the FX market through a willing buyer/willing seller model.

The Policy Advisory Council's report emphasizes the importance of implementing the Nigerian Capital Market Master Plan to strengthen the capital market and facilitate capital mobilization for development. Addressing macroeconomic pressures, enhancing market regulation, and streamlining the monetary environment are key areas where the government can take action. By implementing the council's recommendations, the government can boost investor confidence, encourage capital importation, and drive sustainable economic growth in Nigeria.

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