By Odilim Enwegbara
''Fiscal austerity tends to aggravate structural reforms''
There was opposition all the way. But notwithstanding all the backlashes, he remained focused on his agenda to transform his sleepy country from a provincial agricultural economy into a modern economic superpower. And so, everything standing on his was dealt a heavy blow. Bloated civil service and the military were radically reduced, with millions laid-off. Two-thirds of its diplomatic missions abroad were shutdown. Non-performing state-owned enterprises were either shutdown or forced to become profitable. With recurrent spending hugely reduced, more money that became available went into preparing China the inevitable agricultural and industrial revolutions.
In an effort to attract island Chinese into mainland, all bannable imports were banned. Where tariffs were the answer, highest tariff walls in human history were built. In fixing its infrastructure, besides high domestic savings, China went borrowing from whoever could lend to it. Making sure nothing was left to change, and as part of its comprehensive industrialization and job creation roadmap, besides offering investors highly discounted world-class industrial infrastructure, zero-interest financial packages, as well as unheard-off infant industry protective measures — including avalanche of subsidies, rebates, tax holiday, and labor — were used to seduce island Chinese investors, mostly from Taiwan and Hong Kong, while waking up sleepy large army of local entrepreneurs.
Today, envied by the whole world, no one seems to be talking about Deng Xiaoping's iron-willed persistence, China's tempestuous economic voyage; not even the immense sacrifices Chinese people endured. The truth about how China built its great economy is being hidden mostly by the west so that countries ours cannot copy the Chinese way. The west knows that avoiding its clamored neoclassical path and its globalization driver, including the ''don't do as we in the west do, but do as we in the west preach to developing economies to do,” as China did, Nigeria's transformation will be a matter few years. Of course, blocking our emergence is a fulltime business for the west, which also requires some sophisticated hands to maneuver.
Tagged “Fiscal Consolidation with Inclusive Growth,” the 2013 budget's N2.41 trillion recurrent expenditure against meager N1.54trillion capital (which is not wholly capital in the real sense of it) spending, can never be called an ''inclusive growth'' budget, especially with power and agriculture receiving such paltry N74.26 billion and N81.41 billion respectively. The measly 2.75% increase in capital spending (from 28.53% in 2012 to 31.3% in 2013) is nothing to write home about, more so given the accompanying reduction in our debt/GDP ratio, from 2.85 per cent in 2012 to 2.17 per cent in 2013. With such snail race, obviously another 30 years will pass before we begin addressing our huge infrastructure deficit.
So, from this quick summation, definitely Nigeria's economic diversification is being put on hold, while we continue burning our scarce revenue on bloated recurrent bills. Since this is a trap we got ourselves into over the years, the only way out of requires us to be sincere and courageous enough to seek smarter exit strategy. The earlier the better, otherwise bankruptcy will be sending its hangman to visit us. Putting a closure to government inundation wastages, wastages associated with top government officials' opulent lifestyle, including their first class travels and five star hotel lodgings, is long overdue. In such absence of war isn't it mindboggling that we've such bloated military, redundant military feeding fat on our scarce resources? But why shouldn't the present military budget bonanza be made over, or drastically reduced to a manageable size? It's time for our military go into self-sustaining ventures just like their counterparts around the world, who in absence fighting wars, have created military construction companies, military-industrial complexes with hardware and soft research and development.
Streamlining our unheard-of 541 agencies and departments, especially with many just duplication, should be done immediately. It's time to implement the white paper on the Ahmed Joda Panel Reported on the Review, Harmonization and Agencies lost in the archives since 2000. And the same should happen to the recent report by Stephen Oronsaye-led Presidential Committee on the Rationalization and Restructuring of Federal Government Parastatals, Commissions, and Agencies. The time of agencies like the Universal Basic Education Commission, the Nomadic Education Commission, and the National Commission for Mass Literacy, Adult and Non-Formal Education performing overlapping functions on the provision of basic education should over immediately.
As part of the effort to address our infrastructure deficit head-on, the oil benchmark should be raised between $80 and $85 per barrel. Benchmarking it at $85 per barrel should be the wisest decision because global oil prices are never going to go below that figure. Reasons are obvious. First, global oil prices are never supply and demand determinant, since they a construction and manipulation of Washington with the help of Riyadh. Second, given that without high oil prices America's economy would have gone as bankrupt as Greek's, Washington would be the last to advocate for the lowering of oil prices, since that would drastically reduce the current scramble for petrodollar, which keeps America exporting to the rest of the word its domestic deficits and its bloated military and social welfare spending. So, to remain afloat, Washington badly needs high global oil prices.
Not even China would want global oil prices to plunge. First, that would make Chinese export-driven economy to plunge too, especially given that most of the nonindustrial nations importing Chinese goods are also big time oil exporters. So, to reduce global oil prices will mean massive factory closures in China which will hurt China more than the gains of lower oil import bills. Third, yes, China wants yuan to replace dollar as de facto reserve currency, but Beijing also knows it needs more time to put the right financial infrastructure on in place, or else a global premature rush into yuan as a result of the sudden plunge of oil prices and the accompanying collapse of petrodollar, would spell doom for the yuan. Beijing is also aware that without the current status quo, its $3.7 trillion dollar-denominated foreign reserve risks becoming worthless. Fourth, given that China has since overcome America's oil card which was intended since 2000s to block China's rise as America's true challenger, China wouldn't want the current high oil prices that also keeps Americans consumers of made in China be hampered.
So this explains why there wouldn't be any sudden plunge of oil prices in the nearest future. Yes, there is Eurozone economic crisis, but good enough there is a shifted of global oil consumption from the west to Asia, with Chinese and Indian fast building domestic consumer markets are having more appetite for oil than new oil discoveries around the world could match. So, getting that extra $25 per barrel, should a boost to our infrastructure spending, particularly our power sector, if wholly invested in it. Complementing N74.26 billion in the 2013 budget as well as the $1 billion Eurobond and $150 million African Development Bank loan, should be a wise decision. This is because fixing our power sector remains the only way we can avert potential bankruptcy like Greece, since with that come industrialization and economic competitiveness. And also with that also come economic diversification, unprecedented GDP growth, and high multiplier effect which will eventually move millions of citizens from current mass poverty to soon mass prosperity; and above all, it will awaken our sleepy entrepreneurs and small businesses.
Given this scenario, it makes no sense decreasing our debt/GDP ratio from 2.85 per cent in 2012 to 2.17 per cent in 2013. Because it gives little or no room for fiscal maneuvering, rather, we should in 2013 be pushing our debt/GDP ratio closer to the Fiscal Responsibility Act's 3 percent set ceiling. Comparing ours with those of countries such South Africa with 4.5% in 2012 and 4.6% in 2113; India with 5.7% in 2012 and 5.1% in 2013; Ghana with 6.7% in 2012; and Indonesia with 4.6% in 2012 and 5.1% in 2013, it's obvious that our low debt/GDP ratio is an expensive fiscal prudence measure, which will crowd out investment in infrastructure in 2013. Scraping Section 12(1) of the Fiscal Responsibility Act of 2007 which imposes 3 per cent ceiling or increasing the ceiling to about 6 per cent should be an urgent amendment to FRA. The present austerity while lots of projects cry out loud for spending is uncalled for right now in our developing economy; and will never help us become one of the 20 largest economies in the world by 2020. Rather, let the amended FRA increase its search touch to abandonment of projects. Also, let FRA the amended make it illegal for any money meant for capital spending returned to the treasury be utilized for the coming year's budget for recurrent spending.
Given the growing accumulation of domestic debts disproportionately to external debts, we should by now be demanding why such disproportionate rise since our domestic high interest rates make tend to make domestic debts more expensive to service than external debts. Is it because our high interest rates are crowding in foreign investors seeking arbitrage or because our foreign exporters are lending to us to keep naira artificially high enough for us to continue consuming their good? Some could argue that there's nothing wrong keeping our domestic debt high since we can easily overcome it by printing more naira. But what about the internal hemorrhage as well as the loss of confidence it could cause our economy?
The Debt Management Office's inability to make public its debt sustainability analysis information makes it more difficult for us to ascertain why we're borrowing. Should it be it is being hidden maybe because borrowings have been used to finance recurrent spending, which should be in contravention of section 44 (a) of FRA which says that ''the proceeds of such borrowing shall solely be applied towards long-term capital expenditures"?
Why not making public the purposes for growing our domestic debt? Or where is the evidence the borrowed money is utilized for what it's meant for? What would have been the reason DMO is not making public the list of those holding our domestic debts?
DMO owes that explanation to Nigerians, as well as justifications for foreigners to be buying our Treasury Bills, which are supposedly issued for the purpose of controlling money supply within the country. Shouldn't be it is done to artificially support naira's stability and its favorable exchange rate against the dollar?