Recession – Nigeria is not Brazil

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No two national economies are exactly the same. Rather than reinvent the wheel however, obvious similarities exist in one economy that can be leveraged upon to prescribe appropriate policy measures in another.

If properly articulated and implemented, some of the economic revival measures applied in Brazil can facilitate the reversal of the Nigerian recession and reposition the economy on the path of sustainable recovery and growth.

After providing a resounding grand finale to the Rio 2016 Olympic Games, the first ever to be held in Latin America, the present reality has dawned on Brazil: a political crisis which culminated in the removal of President Dilma Rousseff from office and an economic crisis which has pushed the country into recession.

Once flushed with cash during a decade-long commodity boom like Nigeria, Brazil is now struggling to plug a primary deficit that is expected to reach a record 2.65 percent of GDP this year.

From an economic perspective, Brazil is facing a deep recession with GDP running at -3.8% in 2015 and expectations that the economy will remain depressed this year, with GDP of -3.0%, according to BBVA Research’s forecasts.

Furthermore, annual inflation is around 9%, almost double the 4.5% target set by the Central Bank of Brazil. The official interest rate of 14.25%, is the highest level for a decade. The unemployment rate is now over 11%.

As usual, the IMF is making prescriptions for the recovery of the economy as it would if given the opportunity in Nigeria. After all the managers of the Nigerian economy have been reviewing various recovery options including borrowing from IMF to introduce liquidity and stimulate economic activity.

In fact, the IMF has warned Brazil that substantial changes to fiscal reforms in Congress could threaten the country’s gradual recovery from a two-year recession that has slowed the reduction of social inequalities due to income.

The International Monetary Fund has also called on Brazil’s new government to step up efforts to close a yawning fiscal gap, recommending tough policy changes for Latin America’s biggest economy to pull out of a bruising recession.

To protect that recovery, the IMF urged Brazil to accelerate measures to re-balance its public accounts whose dramatic erosion in recent years has raised fears about the country’s ability to repay its debt.

She who pays the piper dictates the tune. The IMF is calling the shots through an unusually detailed menu of recommendations; it has requested that Brazil should aim to reach a primary budget surplus goal of 3.5 percent of its gross domestic product in five years and also consider revenue measures to shore up its accounts.

The IMF also recommended that Brazil revise its formula to adjust its minimum wage annually, propose legislation to limit states’ expenditures and work on a pension reform that sets a minimum age of retirement and includes all civil servants.

Still, the IMF said monetary policy should remain tight until inflation expectations converge more clearly to the 4.5 percent center of the official target range. Most market traders and economist expect the central bank to start cutting rates in October to bolster the economy.

Here are some economic indicator figures that will facilitate a comparative analysis of Nigeria and Brazil.