*Says domestic borrowing understated, rising spending not impacting Nigerians
Emmanuel Addeh in Abuja
The mounting debts owed several lending organisations by Nigeria have not positively impacted the lives of the people, Agora Policy, a Nigerian think tank and non-profit group which conducts policy research, has said
The organisation therefore stressed that Nigeria needs to undertake swift and audacious reforms to stop the rapid decline of its economy and the resultant negative impact on its citizens.
Agora policy led by Waziri Adio, Founder/Executive Director, noted that the removal of the ‘progressively ruinous’ petrol subsidies, increasing tax revenue, curbing the growing and suffocating appetite for debts, ending restrictive trade practices and adopting a more realistic and transparent exchange rate regime would return the economy to the path of growth.
The report which analysed Nigeria’s economic datasets from 2011 to 2021, called for in-depth reforms, especially in terms of government’s revenue, debt, trade and investment, inflation, interest and exchange rates, and unemployment as well as poverty.
Themed: “Options for Revamping Nigeria’s Economy,” the report maintained that despite posting positive Gross Domestic Product (GDP) growth in six consecutive quarters and having the biggest GDP in Africa, Nigeria’s economy is not in sound health.
“Many of the macro-economic fundamentals have worsened and the level of inclusive development is low. Nigeria needs to undertake swift, bold and far-reaching reforms to halt the precipitous decline and the attendant negative impacts on citizens’ welfare. These reforms must be undergirded by inclusion, transparency and accountability,” it noted.
The document stated that Nigeria’s economy was in desperate need of quick and bold actions to get out of the low and fragile growth, lean and narrow revenue as well as export base, soaring debts and deficits as well as limited trade and investment.
Adio noted that the decision to focus on the economy was driven by the need to expand policy and programmatic options for the current and next administrations.
“Everything revolves around the economy and there is no better time than the electioneering period to do a health check on the economy and come up with ideas and prescriptions for better economic outcomes,” he said.
According to the report data points show that Nigeria has not only underperformed its peers but also regressed on most socio-economic indicators between 2011 and 2021.
It added that the finances of the federal government have been defined in the last decade by a stark mismatch between expenditure and revenue on one hand and by an explosion of debts and deficits on the other.
“ For example, while the federal government’s expenditure rose by 179 per cent from N4.48 trillion in 2011 to N12.51 trillion in 2021, its actual revenue increased by only 81 per cent from N2.57 trillion in 2011 to N4.63 trillion in 2021.
“The growing gap between expenditure and revenue has been bridged with growing debts, translating to a 436 per cent rise in federal government’s debt from N6.17 trillion in 2011 to N33.11 trillion in 2021.
“Significantly, domestic debt rose by 242 per cent from N5.17 trillion in 2011 to N19.2 trillion in 2021 while external debt increased by 2,435 per cent from N546 billion in 2011 to N13.86 trillion in 2021.
However, it stated that the increase in expenditure and debts has not translated to improvement in human welfare.
“For example, the rate of unemployment rose from 5.9 per cent in 2011 to 33.3 per cent in 2020 while youth unemployment soared from 8.04 per cent in 2011 to 42.49 per cent in 2020,” it added.
The number of Nigerians living below the poverty line, it explained, is projected to increase from 82.9 million in 2019 to 95 million by the end of 2022 while inflation as at August 2022 was at 20.52 per cent.
“Domestic debt is understated, Ways and Means grew by over 7000 per cent and is granted in contravention of the CBN Act. The advances by the CBN to the federal government, called Ways and Means, is not captured in the official figures for domestic debt, and this understates FG’s domestic debt by about half,” it added.
According to the report, the federal government’s domestic debt as at December 2021 was N19.2 trillion, noting that its its domestic debt would have been N36.6 trillion if the N17.4 trillion for Ways and Means at that time had been included, meaning the domestic debt as at December 2021 was understated by 47.5 per cent.
It said that from the CBN Act, there are strict stipulations of the maximum amount that can be borrowed by the federal government, including the repayment period, pointing out that these stipulations had not been adhered to.
“According to Section 38 of CBN Act, Ways and Means granted cannot exceed 5 per cent of federal government’s actual revenue for the previous year; must be repaid in full within the financial year it is granted, fresh advances cannot be granted until the previous one is paid off and cannot be repaid through promissory notes or securitisation, contrary to the recent plan announced by the government,” it contended.
Stressing that Nigeria has a major debt challenge, Agora policy think tank stated that despite official statements about the sustainability of Nigeria’s growing debts, the public debt is not only understated but has also become a major drag on public finance.
According to the report, the proportion of expenditure going to debt service is consistently expanding, and debt service has grown to become the highest component of expenditure, thus crowding out other expenditures critical to economic growth and human development.
It interrogated the suitability of using the Debt Sustainability Framework (DSF) for low-income countries for Nigeria, saying that: “For a country like Nigeria where domestic debt is higher than external debt, negating domestic debt service in any analysis will not give a true picture,”.
“Already, using only external debt service as a ratio of revenue has the country just under the strongest threshold. If the analysis is conducted for total debt service (including interest on Ways and Means) as a ratio of revenue, the figure of 90.92 per cent is obtained, indicating very high risk of debt distress,” the report stressed.
On gender and spatial disparity in human development: , it highlighted that generally, the level of human development is low, despite Nigeria having the highest GDP in Africa.
According to the report, this stems from the size and structure of the population as well as limited inclusion.
“While there are more male (56.72male) than female (43.28 per cent) in the labour force, unemployment is higher among women at 35.19 per cent compared to unemployment among men at 31.82 per cent,” it said.
Furthermore, the report noted the spatial dimension of poverty in the country, with its incidence in most northern states above the national average of 40.1 per cent.
“Also, poverty is more severe in rural areas at 52 per cent than in urban areas at 18 per cent. There is also high incidence of poverty among those with low or no education, big family size and those engaged in farming.
“To improve human welfare in the country, we recommend special policy attention to the gender and spatial dimensions of poverty and unemployment and agricultural productivity, and increased investments in rural infrastructure, in education, family planning, vocational training, agro-processing and light manufacturing,” the report said.
On Options for tackling the revenue challenge, it reiterated the most critical policy issue for the federal government and ‘the paper states’, is inadequate revenue.
According to the report, the federal government tax revenue-to-GDP shrank from 8.2 per cent in 2011 to 4.4 per cent in 2019, the lowest for central governments in Africa and among Nigeria’s peers.
“The revenue problem is compounded by leakages such as increase in oil theft and petrol subsidy, both of which significantly reduce the revenue from oil sales that used to account for the bulk of government revenue,” it stressed.
Oil theft, it said, has reduced Nigeria’s oil production by almost half while most of the revenue that should accrue from sale of federation oil is swallowed by petrol subsidy, which the report argues goes more to the rich than the poor.
“Petrol subsidy alone gulped N1.59 trillion in the first half of 2022 (January to June). The N1.59 trillion half-year expenditure on petrol subsidy dwarfs the full-year 2022 budget for social development and poverty reduction (N462 billion), health (N876 billion), education (N1.34 trillion) and infrastructure (N1.42 trillion)” it stated.
The report noted that petrol subsidy is no longer sustainable and should be removed but that its removal should be accompanied with effective communication and targeted transfer to the vulnerable.
