AVERTING LOOMING ECONOMIC CRISIS
That Nigeria spends more than it earns indicates fiscal irresponsibility that should be urgently addressed
The time for spin seems over with the tacit admission last week by the federal government that the national economy is now effectively in dire straits. According to the Minister of Finance, Budget and National Planning, Zainab Ahmed, the country’s debt service cost in the first quarter of 2022 exceeded revenue by a whopping sum of N310 billion. That figure is already higher than the projection by the International Monetary Fund (IMF) which had in its 021 Article IV last February warned of the danger ahead. While our officials may have jargons to explain the challenge at hand, the word on the streets is that Nigeria is gradually going bankrupt and that should worry all critical stakeholders.
As we have argued in the past, there is nothing wrong for a country to face temporary economic setback so long as the managers of the economy are capable and indeed able to fix it. What will be tragic is for us to live in denial and resort to unrestricted borrowing to falsely prop the economy as we continue to do. This was what brought Greece, Italy and Portugal to their knees and the consequences are still with those countries despite strong institutions and more accountable leaderships.
The major problem with Nigeria is fiscal irresponsibility at all levels of government and the over dependence of on an unpredictable source of income: rent from oil. With massive theft through illegal bunkering and the inability of the government to remove fuel subsidy, it is easy to understand why the national account can no longer balance. What Nigerians therefore demand, and deserve at a time like this, is not subterfuge. Beyond the subsidy question that has been hanging for decades, there are other issues that need to be addressed.
For our size and needs, we are not generating enough revenues, and there are too many leakages. There is still a fixation with making public university education free when it is primary and secondary schools we should be focusing on. We need a moratorium on official junkets, a freeze on further capital commitments, an engagement with all foreign and domestic creditors for some reprieve on existing debts, etc. Borrowing to pay salaries also makes no sense but that is where we are today.
Addressing our infrastructure deficit is imperative. We cannot enjoy the necessary growth without it. But given our population, most of these deficits can be financed through Public-Private Partnership (PPP). With that in mind, we must always remember that there is competition for capital, so we need a clear framework. In making decisions, investors consider the risk-adjusted returns. Yet, all too often, Nigeria does not scale this hurdle because of the high level of uncertainties which equate to higher risk without commensurate returns. We need to also take the necessary steps to address the power situation.
Although the federal government has kept comparing our debt/GDP ratios to other countries and saying we were within normal limits, revenue to GDP in Nigeria was much lower and therefore our debt service/revenue unsustainably high. No company would expect to stay in business in the mid to long term if it deployed the same financial management approach as our national government. Equally, no country should expect that there would be no consequences for continually spending above its means.
Going forward, government at all levels must learn to view things holistically. For example, right now they will be tempted to raise taxes to cover their ballooning costs without due thought to the potential negative impact on other aspects of the economy. They should have a handful of core objectives such as economic growth that far surpasses population growth, and significant reduction in unemployment and under-unemployment, amongst other considerations.