Obinna Chima and Ugo Aliogo
The Minister of Finance, Mrs. Kemi Adeosun yesterday said the foreign exchange (forex) challenges the country had been experiencing in recent time was as a result of the consumption based model of the country over the years.
Adeosun, who disclosed this in Lagos at the 2017 Nigerian Economic Outlook, with the theme ‘Make in Nigeria: Myth or Reality’, at the Redeemed Christian Church of God, King’s Court Parish, noted that with about $26 billion, the country does not have sufficient savings in its external reserves compared to other oil producing countries such as Saudi Arabia with $700 billion in its reserves.
The naira weakened to N497 to the dollar on the parallel forex market on Friday. But on the Bureau De Change segment, the naira went for N400 to the dollar, while on the interbank market, it has remained at N305 to the dollar. However, the finance minister pointed out that if the country would be able to fix its refineries, a significant amount of the pressure in the forex market would be reduced.
“Part of the problems we are having is foreign exchange. The challenge we are having with the foreign exchange is our consumption based model. Oil accounts for 30 per cent of our demand for dollars. So if we fix our refineries, 30 per cent of the money we need in dollars will just disappear.
“In 2010, there were warning signs that the oil prices were going to fall, but we didn’t take it serious. If we had done what we are doing now in 2010, such as cutting cost and cleaning up the power sector, we will not be where we are now. However, we are hopeful that it will not happen again. We are not an oil economy, oil accounts for only 30 per cent of our economy,” Adeosun said.
In addition, she stated that there was a strong link between corruption and the present state of the nation, adding that as part of President Muhammadu Buhari efforts to transform the country, the fight against corruption would continue to be given the necessary attention. “We cannot bury our head and forget, we have to fight it, otherwise it will continue. It is corruption that has brought us to where we are and added to that is wastage. We must watch the way our monies are spent,” she noted.
She lamented that during the oil boom the country didn’t save enough for the future; instead 90 per cent of government spending was being spent on recurrent expenditure, with just 10 per cent on capital project.
She explained that the since passage of the budget under the current administration, the monies that had been spent on capital projects are accounted for, adding that efforts have been made to cut down on cost in other to prevent wastages.
Adeosun remarked that the administration was also focused on addressing the fiscal deficit through new sources of deficit financing, eliminating corruption through systemic changes to government finances, driving long term growth, increasing expenditure efficiency by reducing and rationalising recurrent expenditure, identifying strategy sources of funds and rebalancing loan portfolio, centralising collections and eliminating leakages through the Treasury Single Account (TSA).
Adeosun added: “It is capital project that drives the economy. In 2015, N19 billion was spent on road construction, while N64 billion was spent on travelling by government. We spent N30 billion on welfare; when a country spends so much on unproductive things, it cannot grow. This was the problem we inherited and we are trying to fix. We only had one source of income, and didn’t have another option. We were borrowing money to pay salaries, to fund welfare, travels and training. In June 2014, the FAAC was N909 billion for the month, while in June 2016, it was N302 billion.
“Salaries and statutory transfers is about N165 billion every month for federal government salaries only, while pensions is about N15 billion. There are statutory transfers to agencies such as the National Assembly and Judiciary, these are fixed cost expenses which we must meet and everything amounts to N210 billion. While debt service which is the interest on debt we inherited is N120 billion monthly.”
Furthermore, she decried the fact that the country had not been able to develop a system for cleaning off ghost workers and pensioners from the payroll system, adding that some civil servants reside in US, but collect their salaries in Nigeria. “This practice has been ongoing for years, we must fix that problem. We must fix the problem of ghost workers, pensioners and wastage,” she added.
Adeosun stressed that when the administration assumed office, they realised that a lot of money was spent on buying food and drinks for meetings and paying meeting allowances, with limited amount available for capital projects.
She said: “There is no country in the world that spends more on recurrent expenditure than its capital expenditure. Ethiopia for instance spends 65 per cent on capital projects. Ethiopia have running trains, we don’t have. We have to change the way we spend money in order to grow the economy.
“So we had rising level of unproductive debt, low level of infrastructural expenditure, negatively affecting capital formation, mstandard of living and growth, consumption based growth model hiding vulnerabilities arising from under-investment in infrastructure, overdependence on oil to non-inclusive and unsustainable growth”, she added.
The minister expressed confidence that the administration was committed in its drive economic transformation, but assured that it would take some time. She also assured Nigerians that a lot of their expectations would be met by the current administration.
