Nigerian authorities, both civilian and military, have adopted various measures to arrest deterioration in her balance of payment situations.
a. Fiscal Measures
i. Government Budget: The various governments of the Federation, having realised the impact of excessive government spending, had on many occasions cut down on the size of government budgets overtime. This was particularly true of the civil war years and the low profile budget of 1978/79-budget year.
ii. Tariffs: The goverment introduced various tariff policies over the years with a view to arresting the adverse balance of payments situations. Thus in 1964, the Federal Government increased indirect taxes on a wide range of imports and domestic manufactures to protect the balance of payments position. Also, additional indirect taxes have been imposed on luxury commodities in high demand. Super tax was introduced during the war. All these were intended to improve the adverse balance ofpayment situations.
b. Monetary Measures
In 1964, the Central Bank of Nigeria adopted a measure ofselective control and moral suasion and certain general regulatory measures to restrain private spending without discouraging capital formation. This has also been done in some recent years. Other measures include the use of guidelines. The Central Bank in 1964 limited the rate of increase of aggregate advances by commercial banks. In 1965 and 1966 and also in other years, the Central Bank of Nigeria placed a ceiling on the rate of expansion of commercial bank advances over a given period to aid balance of payments and to create relative credit scarcity and to lead, therefore, to credit rationing.
c. Foreign Exchange Regulation
In 1962, the Federal Government felt the need to regulate her foreign exchange policy. To this effect, the Nigerian Foreign Exchange Control Act was passed in 1962. This Act had provision covering a wide range of activities such as foreign exchange permission on selected items.
However, this Acthas been abrogated in 1968, the Exchange Control regulations and procedures were further tightened. Thus transfers in respect of dividends, profits and other capital transfers were suspended.
Payment for certain invisible items including management agency fees, royalties, technical charges and commissions, and expenses due from Nigerian firms to their agents and representatives in countries outside Nigeria were suspended. Reduction of cash gifts to charitable organisations abroad were reduced from 500 to 100 per cent year. All shipping companies were required to give at least one month's notice of
their foreign exchange requirement for charter-fees to the Federal Ministry of Finance, giving all relevant information in respect of vessels and the terms of charter.
In 1970, it was required that payments for current transactions be met only out of current receipts as foreign exchange became available and it was an offence to export Nigeria currency. Personal remittance by foreign nationals residing in Nigeria was limited to 50 per cent of their gross taxable income in Nigeria and was subject to prior approval by the central bank. Basic travel allowance of N500 per annum per person was reduced to N200 a year (N100 a year for children) in 1970. All these were further reduced in 1971. Following a strong wave of foreign exchange scandals, the Federal Government promulgated the foreign Exchange Anti-Sabotage Decree under which some highly placed Nigerians were persecuted and convicted.
d. Export Promotion
The government felt the need to improve her balance of payments situation through export expansion. To this effect, the government embarked on massive export drive. To do this she adopted the following:
i. Protection for Domestic Industries: In doing this, the government restricted the importation of goods whose local supplies were found adequate both in terms of price and quality in 1972. This policy was equally introduced in 1978 when total ban was placed on certain category of consumer commodities e.g.
frozen meat.
ii Granting of Incentives: Right from time, the Government embarked on the giving of incentive to domestic businessmen and industrialist. In 1965 the government introduced the granting of incentives to attract further investment in the private sector. In 1970, industrial concessions were granted industrialist in Nigeria in respect of certain capital and initial allowances. Similarly, special assistance has been rendered to Nigerian businessmen to enable them to expand their activities. The super tax introduced during the civil war was abolished in 1972. In the same year, 1972, import duties on raw materials for industrial production were reduced by between 10%. The two-tier tax on marketing board produce was abolished and replaced by a single tax of 10%
(an valorem). The Federal government in 1971 started to buy
"made in Nigeria" goods. In the same manner, the government in 1972 exempted companies earning a profit of less than N6,000 from company tax. Similarly, the 25% import duty on paper used for manufacturing exercise books was abolished.
e. Trade Agreement and Economic Cooperation
The need to protect her balance of payment led Nigeria into entering various trade agreements and economic cooperation's right from 1961.
In 1962, Nigeria entered into International Tin Agreement to arrest the declining commodity's prices. In 1972, the Nigerian National Oil Corporation signed an agreement with SAFRAP, through which the government acquired 35% of the company's operations. Also an agreement was signed with a Soviet technical firm whereby the Soviet firm will undertake to establish an oil production-training centre at Warri. Nigeria also joined the Organization of Petroleum Exporting Countries with a view to earn more on her petroleum export and to improve her balance of payments. The motive behind the formation of the Niger Basin Authority, the Chad Basin Authority and the Economic Community of West African States has balance of payments undertones.
f. Exchange Rate Policy (Devaluation)
For a developing country like Nigeria, exchange rate is not a powerful instrument for influencing the outlook of our balance of payments, particularly in the short run. The main reasons are obvious. First, our trade position may not be improved. Indeed, currency depreciation worsens the terms of trade and adjustments to the altered international trade could take a long time to materialize. Second, in the short run, the prices of our export of primary export commodities, including petroleum, might have been determined in the world markets. In this case, exchange rate depreciation is not likely to confer any important benefits in terms of increased export receipts. Third, owing to our growing need for imports, exchange depreciation would have caused inevitably, higher import prices, including the import of raw materials.
Also, the fear is always there that devaluation would add to inflationary forces either directly through the effects of higher imports prices on domestic price level or indirectly by encouraging excessive wage claims. It is important to add that the short-run results of devaluation in a country like Nigeria could be partially offset by increased value of external assets especially in cases where devaluation does not provoke equiproportionate devaluation by the major reserve centres.
4.0 CONCLUSION
Nigeria's balance of payments has been under persistent pressure since 1982 when the second oil shock occurred and the debt burden became pronounced. Attempts at managing the balance of payments, involved restrictive exchange and trade control practice to achieve the policy objectives. The liberalisation of exchange controls and the institution of a market-based exchange rate mechanism with the commencement of
the Structural Adjustment Programme (SAP) temporarily stabilised international payments. However, slippages in policy-in particular, the reflation of the economy in 1988-intensified pressure on the external sector. Non-oil exports that initially rose at the inception of SAP declined in 1989 and have remained depressed ever since.
More so, the disproportionate size of oil exports vis-a-vis non-oil exports, the excruciating debt burden, and the unfavourable domestic and international economic environments have constrained the achievement of a balanced and sustained economic growth that could foster balance ofpayments viability.
5.0 SUMMARY
Balance of payment equilibrium is a situation whereby a country'sreceipts and payments are equalised. However, factors such as demand conditions, international competition, exchange rate valuation, tax regulation, etc, are responsible for the balance of payment disequilibrium in the country. In this regard, the government has put in place over the years certain policy measures such as, fiscal policy, monetary measures ,foreign exchange regulation, export promotion to address this problem.
6.0 TUTOR-MARKED ASSIGNMENT
What were the policy measures that respective governments in Nigeria have employed to ameliorate the balance of payment position?
7.0 REFERENCES/FURTHER READING
Anyanwu, J.C., Oyefusi, A., Oaikhenan, H.O., Dimowo, F.A. (nd).
Structure of the Nigerian Economy (1960-1997). Joanee Education Publisher Ltd.
Molem C.S.(nd). Growth and Development of Nigerian Economy.
Kaduna: Silver Bond Publisher.
Tayo Lambo (1982). Nigerian Economy: A Text of Applied Economics.
Evans Brothers Nigeria Limited.