Obinna Chima

A renowned accountant and financial market expert, Mr. Bode Agusto has stressed that fiscal sustainability remains a challenge for the federal government.
According to the founding chief executive of Agusto & Co., a situation where a greater fraction of the government’s revenue is spent on payment of wages and salaries is not sustainable.

This, he noted, impacts negatively on the level of finance available for the government to invest in infrastructure.
Agusto made this remark in a presentation at a forum on Nigeria 2018 outlook organised by the Ecobank Group in Lagos recently.

He explained: “All the monies that we earn, we use it to pay salaries and wages of government workers, with little or no investments in infrastructure. That is not sustainable! Fiscal sustainability is a big challenge for Nigeria.

“We know how to budget N2.6 trillion, but we don’t know how fund it. But it is the true level of infrastructure spending that will impact the economy and not the budgeted amount.
“To budget N2 trillion for capital expenditure in an economy of N100 trillion, that is two per cent infrastructure investment. Ghana spends about five per cent annually on capital expenditure.

“Ivory Coast spends slightly above five per cent annually on capital expenditure, while Kenya spends slightly above seven per cent. So, the level of infrastructure spending in other key countries in Africa is much higher.
“This government came in on the promise that it is going to be big on infrastructure. Have they done that? Not really.”

He noted that obligatory spending of the federal government was still more than 100 per cent of revenues, “therefore there is no free cash flow for investment in infrastructure.”
“The fact that every kobo of infrastructure spending is financed by debt constrains ability to fully fund budgeted amounts.
“Actual borrowing in 2018 may be higher than the planned figure of N1.8 trillion and the bulk of the additional amount coming in local currency.”

He expressed displeasure over the perennial delay in passage of the annual budget.
According to the financial market expert, there is need for urgent fundamental reform in the country, such that there would be enough resources to utilise for capital expenditure.
He also faulted the argument that the level of debt accumulated by the country was low, just as he warned policymakers to be watchful of the rising debt.

“People say Nigeria is not over-leveraged and that our debt-to GDP ratio is less than 20 per cent. But the question is do we use GDP to repay debt? Nigeria is over leveraged,” he added.
However, Agusto bemoaned the fact that a lot of Nigerians don’t pay taxes.

In his economic outlook, he predicted that the average price of the benchmark Bonny light crude for 2018 was likely to be higher than that of 2017, driven largely by OPEC production cuts, stronger growth and political tensions in the Middle East. According to him, the ability of Nigeria to grow its oil export revenue would still becontingent on its ability to produce and evacuate crude oil from the Niger-Delta.
He anticipated that the Central Bank of Nigeria (CBN) would continue its demand management strategy for imports this year.

“If Nigeria can produce and evacuate crude, she will build reserves but some of the reserves will be used to intervene in the NAFEX market to keep exchange rates at near current levels.
“The focus of monetary policy will remain exchange rate stability. Cash reserve requirement will therefore remain high although there might be a slight reduction in the rate.
“Inflation is likely to remain double digit. Federal government’sborrowing requirement will remain large and with double digit inflation, the average yield on FGN 90-day treasury bills will be in the region of 12 per cent,” he added.

Continuing, Agusto said: “We believe they would spend more this year. Nobody is going to save in an election year. External reserves, we closed the year at $39 billion and we believe we are going to get to about $46 billion by the end of this year. “Some people might argue that it might be bigger than $46 billion this year, but we don’t think so. Why don’t we think so?
“We believe there may be pressure on the foreign exchange market for the currency to devalue and the government may not like this. Therefore, it may use some of the reserves to intervene.”