The Lead Director of the Centre for Social Justice (CSJ), Eze Onyekpere, has been a vocal advocate for fiscal discipline. In this interview with Ndubuisi Francis, the senior lawyer whose interventions on macroeconomic issues have in over a decade put government officials on their toes, laments that the framers of national budgets have consistently neglected Section 19 (f) of the Fiscal Responsibility Act (FRA), which would have provided the compass for navigation in a period of economic emergency which COVID-19 exerts. Excerpts:
The federal government has unveiled a number of measures in response to the impact of the COVID-19. These include cutting the capital component of the 2020 Budget by 20 per cent, reduction of oil benchmark price from $57 per barrel to $30 as well as a proposed reduction in recurrent expenditure by 25 per cent, among others. What is your take?
The decision to cut capital expenditure in the 2020 federal budget by 20 per cent and the recurrent expenditure by 25 per cent was inevitable considering the plunge in oil revenue. The drop in crude oil price from the $57dollar budget benchmark to about $25 per was not anticipated by the crafters of the 2020 federal budget. But this should not the situation. The crafters of the budget have consistently failed, refused and neglected to accompany the budget with a Fiscal Risk Appendix as provided in section 19 (f) of the Fiscal Responsibility Act (FRA). Apriori, the Fiscal Risk Appendix evaluates the fiscal and other related risks to the annual budget (including the revenue framework) and specifies measures to be taken to offset the occurrence of such risks as well as measures to be taken when the risks crystallise. Thus, this decision made in a rather knee-jerk manner should have been subjected to empirical simulations, projects and analysis at the design stage of the budget. The federal government cut should concentrate on administrative capital while boosting developmental capital. Administrative capital refers to capital investments to enhance the bureaucracy and the smooth running of government whilst developmental capital refers to investments that impact on the overall quality of life, ease of doing business, etc. of the majority of Nigerians. These include roads, hospitals, education facilities, power sector investments, etc
There has been a spike in inflation rate in the past few months. What does this tell about the economy?
The spike in inflation rate shows that the economy is still in the woods. Progressive economies are built on single digit inflation rate of less than five percent. Monetary policy is one the greatest influencers of economic development and progress. It is one field that many developing nations including Nigeria are yet to come to terms with. With a Naira that is unduly tied to external development in an economy that adds very little or no value, the inflation rate is bound to skyrocket. But it need not be so if the proceeds of our foreign earnings are properly managed and infused into the economy through dollar certificates instead of the current practice of creating new money, not backed by value, as a means of infusing the foreign exchange earnings. This creates and induces excess liquidity. This is not my idea; neither is it new or novel. This is the position in Obasanjo’s National Economic Empowerment and Development Strategy blueprint. Unfortunately, the managers of the economy, over the years have not summoned the courage to implement this wonderful recommendation.
Our foreign reserves have suffered a steady decline in recent months, just as the Excess Crude Account (ECA) has been depleted . With little or no fiscal buffers, is there a real cause for alarm with the current global economic emergency foisted by the COVID-19 pandemic?
There has been a lot of misinformation on the Excess Crude Account especially when otherwise informed commentators state that it has no legal backing. It is established by section 35 of the FRA which states the clear conditions for its accretion and withdrawals. Also, since the coming into force of the FRA in 2007, all federal Appropriation Acts contain provisions which mandate the saving of any sums accruing over the benchmark price. So, the dire financial situation which Nigeria finds itself was avoidable if and only if the federal authorities had implemented the provisions of the FRA in saving the excess over the benchmark price, over the years in the Excess Crude Account while only accessing same when the price of crude oil drops for 3 consecutive months below the benchmark price. Such withdrawals from the ECA should only have been for augmentation to bring the respective federal and state budgets to the position they would have been if the price of crude oil did not fall. Proceeds of ECA was not designed to be a slush fund to be used by the executive without appropriation as currently practised. The combination of a depleted ECA and dwindling foreign reserves to just about 8 months of import cover is a clear red flag to show that the economy has been dangerously mismanaged. Yes, it is right for the alarm bells to be ringing. Nigeria has been feeding from hand to mouth. This is beyond the COVID 19 pandemic which only exposed the soft underbelly of the mismanagement. Nigeria needs knowledgeable persons to run its economy. The managers of the economy cannot continue to occupy space without introducing innovations and new ideas. The economy cannot continue to be managed on a trial and error basis whilst we expect wonderful results.
The CBN has come up with a cocktail of initiatives to battle the economic impact of Coronavirus. Do you think these measures are adequate and timely?
The policy and fiscal interventions of the Central Bank of Nigeria appears to have been made in good faith to reflate the economy and to prevent business collapse to ameliorate the hardship faced by Nigerians. The policy measures include the immediate cut on interest rates of all applicable CBN intervention facilities from nine per cent to five per cent per annum for one year, effective March 1 and the creation of N50 billion targeted credit facility for small and medium scale enterprises as well as households impacted by the COVID-19 pandemic. There will be a great challenge in determining who qualifies for this facility. It further includes the extension of the period of grace given businesses for the repayment of the loans by one year on all principal facilities, particularly intervention loans, effective March 1, 2020. Also, there is a facility of N100 billion loan in 2020, aimed at supporting the health authorities to ensure laboratories, researchers and innovators work with global scientists to produce vaccines and test kits in Nigeria to prepare for any major crises ahead. But the crisis is already here with us. However, there is a danger in CBN’s continued doling out huge sums of money, not backed by appropriation or any legal framework, beyond claims of being empowered in the CBN Act, to different causes in the economy. The first and unequivocal issue is that the money being spent or allocated by CBN to these challenges is taxpayer’s or public money. It does not belong to the CBN governor, board, management or staff. The second issue is that these CBN interventions now run into trillions, not a few hundreds of millions or billions. It could not have been the contemplation of the CBN Act that CBN should be the one to determine how to spend such humungous sums, what to spend on as well as being the approving authority. Probably, this could have been justifiable for relatively small sums of money. The third issue is that previous interventions especially the aviation and power funds virtually did not achieve their objectives as their design was faulty.
The 1999 constitution is clear in sections 80 and 81 that public resources cannot be spent without legislative approval. The beauty of such legislative approval as seen in the Barracks Obama American Presidency interventions during the earlier global crisis is that the enabling law sets clear benchmarks and parameters for accessing the fund, repayments and determining success and it is transparent and accountable to the tax payer. Pray, where are the reports of previous CBN interventions? In the public domain? The measures so far taken by both by the federal government and the CBN are inadequate to stave off the crisis. The expectation is that the federal government, through President Muhamadu Buhari should decide and create an intervention fund, to be funded from a plethora of funding sources including the CBN. He should exercise leadership and present the appropriate bill to the National Assembly for approval. Unfortunately, the President is missing in action and you cannot compare his style with that of President Donald Trump and other world leaders who lead from the front since the COVID 19 crisis hit America and the world.
Many analysts have expressed apprehension that the Nigerian economy might slip into another recession, if the current global emergency and oil price drop continue. Do you align with this school of thought?
If the Nigerian economy continues on its present trajectory, it will slip into recession. The fall in oil revenue will also likely lead to a drop in non-oil revenue. Oil revenue accounts for over 90 per cent of our foreign exchange earnings needed for import of raw materials and intermediate products used in local industries, from which government generates corporate tax, import duties, etc. If the reduced price of crude oil hits these firms through unavailability of foreign exchange, recession will follow. This is coming against the background of the COVID 19 pandemic that has already led to closure of schools, social outlets, reduced air transportation and if it escalates, the economy will grind to a halt.
Many analysts have blamed the failure of the government to diversify the economy for the current hysteria over the impact of Coronavirus following the drop in oil prices. What is your view?
Diversification of the economy has been the mantra of previous and the present administration. It has been a convenient catch phrase without the administrations taking any concrete and targeted steps towards the diversification process. Pray, how can you diversify an economy that lacks the basic electric energy to drive agriculture, industry, service delivery and an efficient bureaucracy? Beyond diversification, we have not even expounded the frontiers of the oil and gas economy through local refining for domestic use and exports as we still import fuel; there are no petrochemical complexes to take advantage of the other components of crude oil beyond petrol and diesel. Pray again, how do you diversify the economy when the leadership in all arms of government refuse to patronize the quality products of local industries as shown in the recent National Assembly car acquisition fiasco? For instance, the automobile industry should have started contributing substantially to our growth through targeted interventions and patronage. We need to build an economy where the President, Senate President and Chief Justice drive made in Nigeria official cars. We need to establish a Nigerian vehicle fund to make available credit for the purchase of locally manufactured cars at single digit interest rate. The diversification of the economy should go beyond the mantra and utilise local capacity in research institutes to kick start technological drives in different sectors from agriculture to industry, education and health, etc. Research institutes are not established for mere atavism; their funding should be tied to deliverables which improve the economy in different sectors. Trade, industrial, fiscal and monetary policies should be used to drive growth in new sectors beyond oil.
The Senate has approved a $22.7 billion foreign loan at a time debt service is becoming increasingly difficult due to dwindling revenue. How do we reconcile this?
Nigeria’s economy had already been mismanaged before the COVID-19 intervention. The country was using over 50 per cent of her earnings to pay back debt in the last three years and now another humungous $22.7 billion is being added to the $85 billion debt. At current available revenue in the reduced oil benchmark situation, Nigeria may be using about 65% of her earnings for debt servicing. When existing debt is added to the new borrowing in a drastically reduced revenue scenario, your guess is as good as mine as to where this will lead the Nigerian economy. It is not too late for the National Assembly through the House of Representatives to reject this loan and free Nigeria from impending debt slavery.