•Rewane: Nigeria is at mercy of its creditors, investors, others
Dike Onwuamaeze
The Director General of Budget Office of the Federation, Mr. Ben Akabueze, has stated that reducing budget expenses was not a feasible option for the federal government of Nigeria.
Akabueze, stated this yesterday at the Lagos Chamber of Commerce and Industry’s (LCCI) 2024 Economic Outlook and Budget Analysis with the theme “Building Economic Resilience in 2024: Strategies for a Sustainable Future.”
The President of LCCI, Mr. Gabriel Idahosa, explained that the economic outlook and budget analysis was an annual event designed to review key policy developments and macroeconomic performance in the previous year and discuss the outlook for the year ahead, focusing on risks and opportunities.
Speaking during the panel discussion, Akabueze said, “cutting expenditure is not a feasible option currently. In the first place, we are not even spending enough. If you look at our public expenditure-to-GDP ratio it is one of the lowest even on the continent. So, spending less is not an option for us. Spending more efficiently? Yes, in some areas!
“We compose the budget between what we call discretionary and non-discretionary components. The non-discretionary expense in the budget do not give you room to spend less in terms of debt service because we have got the debt to service.
“The possibility of debt rescheduling is something the market does not want to hear. Even a mention by the former finance minister last year that Nigeria could consider debt rescheduling spelt mayhem within 24 hours in the pricing of Nigeria’s instruments. So, it is a very sensitive option for discussion.
“But the point is that the scope to reduce our debt service is a risk, which is currently almost a third of the budget.
“Then you look at the personnel cost, which is another 30 per cent and there are the basic cost of even maintaining the security architecture. So the discretionary component of the spending is not a whole lump. So, cutting expenditure is not.
“The scope of even saving by greater efficiency is not much. So we have to basically continue with a deficit budget to give us barely adequate level of public expenditure.”
Akabueze emphasised that low public revenue against the background of ever increasing demand for public goods and services in the midst of rapidly growing population had constrained the federal government to continue to run a deficit budget for nearly more than two decades.
He said the budget deficit was funded through debt consistently for over two decades.
“The truth is that it (debt) has been accumulating. Now we are at a point where there are concerns about public debt sustainability. So, we cannot continue at (high) deficit range. The resort to deficit also has an inflationary impact. We have adopted the philosophy that we have to act counter cyclically in a situation like this,” Akabueze said.
Speaking at the LCCI’s 2024 economic outlook, the Chairman of the Presidential Fiscal Policy and Tax Reforms Committee, Mr. Taiwo Oyedele, estimated that more than 90 per cent of diaspora remittances do not get to Nigeria in dollars or any other foreign currency.
Oyedele said: “The World Bank said in October 2023 that our Diaspora remittance was $20 billion. We estimate that more than 90 per cent of that did not get to Nigeria. They were being externalised. Nigerians in The UK and USA use apps to transfer their dollars to a fintech that will credit their Naira account at the parallel market rate without bringing in the dollars into Nigeria.
“Secondly, even exporters are not bringing in their foreign currency proceed. They also externalise it because if they bring it in at CBN’s rate of N850. When they will need FX to buy inputs they will not find it at that rate and have to patronise the parallel rate. So, they keep it abroad.”
He added that the removal of petrol subsidy and the floating of the Naira saved N8 trillion for the government.
“What we are saying to the government is: can we be intentional in spending this N8 trillion to make sure that it impacts the people most positively?
“We have had extensive interactions with stakeholders, including multinationals and rating agencies. In all of these, many of them said to us that if all the challenges in Nigeria combined, exchange rate alone is more than 50 per cent of them, which means it is a major thing we have to address,” Oyedele said.
In his contribution, Chief Executive Officer of Financial Derivatives Company, Mr. Bismarck Rewane, who was the keynote speaker at the 2024 economic outlook, said Nigeria was at the mercy of its creditors, investors and others.
Rewane said the smart thing for Nigeria was for the country to do the right things in small doses and sequencing in order to send, “the right signals to the market, especially to our creditors because we at the mercy of the investors, we are at the mercy of our creditors, we are at the mercy of our consumers and we are at the mercy of our voters.”
He said that Nigeria must make known the true level of its net external reserves.
“It is better to say what it is than to allow the market to speculate on it. Also, make the exchange rate market more efficient and transparent. Thirdly, begin to move your interest rates in a manner that showed that you are serious and that you are taking it in a sequenced deliberate manner.”
