Incoming Administration Has no Time to Settle into Government
In this interview on Arise News, the former Chief Executive Officer of the National Bureau of Statistics (NBS), Dr. Yemi Kale spoke extensively on the Nigerian economy, inflation, and the challenges that pertain to Nigeria’s debt stance. Nume Ekeghe presents the excepts:
When you look at all the metrics the administration is coming into, what does that mean for the economy as far as the transition year is concerned?
It is very challenging, typically, in a transition year, the government has the luxury of slowing down activities, the outgoing administration winds down and the new incoming administration tries to settle into government. So, very few activities occur traditionally. But because of the previous macroeconomic and socio-economic challenges that the economy currently faces, they don’t have the luxury of that time this time around.
And it cuts across all four sides of the economic sector, household consumption is constrained, leading to slow fragile growth. On average since COVID-19 Nigeria has grown 1 per cent and if you compare that on average, with a population growth of over 2.7 per cent or labour force growth of about 3 per cent, it tells you what is going on with poverty, with employment.
If you look at the external sector, you have challenges with the exchange rate, challenges with foreign exchange accretion, agreeably challenges with the balance of payments trade balance. And then the fiscal that we hope would be spent out of these challenges is also having issues with inadequate revenues, which signals very high debt and more worrying high debt service. So, when you’re looking at all of that it is very challenging. I don’t think that they’ll have the ability to settle down and take their time like they normally would do.
There are pushbacks on fuel subsidy, do you support it being removed?
If you look at it from a technical point of view and an overall what is best for the country. Undeniably, removing subsidies will have significant economic costs. It has a significant social cost, but keeping subsidy also has significant economic costs, has significant social costs and even environmental costs. So I don’t like to look at these things by focusing on all the positives like those that want to remove subsidy will do and ignore or play down the negatives or those that don’t want to focus on all the negatives. I prefer looking at the holistic approach, look at the entire system and then determine what is overall best for the country because any policy including this one will have positives, it was negative, some will benefit and some people would lose out from the policy at the end of the day is the cost-benefit analysis to determine overall what is best for the economy.
And for those that are going to lose, how can the government introduce palliatives to minimise the negative effects of that policy. I think that’s the conversation we should have. Let’s be honest, I think we’re getting to a point if we are not already there that the conversation will not be about removing the subsidy, it will be subsidy has to be removed because we just can’t pay for it any longer. I’ll prefer that before we get there, we can actually discuss this so that the process of moving subsidies, is well communicated and maybe in a well-phased approach. The truth of the entire thing is you and I benefit more from the subsidy than the poor that we like to say that we are thinking about because your consumption of fuel is a lot more from going from point A to B in your car, on your own is probably a lot higher than a poor man in a taxi with five people or in a bus with 20 people going from that same Point A to Point B, his consumption per capita is less.
When you have a subsidy regime that for the first six months in 2023 is higher than your budget for health, education and infrastructure combined, then you have to ask yourself if that is the best way.
There is an ongoing debate on government size, should it be trimmed down or is it over bloated?
Looking at 1.5 to 2 million public sector workers for the entire Nigerian system, I wouldn’t say that is too big. You would find situations where in certain areas there are a lot of people doing nothing, while in other areas they don’t have enough staff.
Overall, compared to comparable countries with Nigeria, Nigeria’s numbers are not significant even in terms of the amount allocated to them. We only say that the amount allocated to them is to big because you are relative to capital, so that is a revenue issue. If your capital budget is N20 billion, you would say the one or two billion allocated to salary is too big. But because there is not enough revenue, and unfortunately you can’t do anything about salaries you have to pay, that’s when salaries look bigger than it really is. I don’t think the government numbers in terms of staff is too big.
How do we bring down inflation?
How you bring down inflation would be determined by what is causing inflation in the first place. And inflation is either caused by demand-push factors or by cost-push factors and I believe it is more cost-push factors in Nigeria. But cost-push factors are not things you do in short-term measure, there are things involving the cost of production, infrastructure deficit, cost of input, cost of financing, and things of that nature. I think it is a combination of both. On the demand side, the argument is too much cash chasing too few goods but there are two sides to the equation, cash, and output. We have to be sure that the problem is excessive cash but if it is a situation of output and in Nigeria’s case it is an output problem.
On the cost-push side, I don’t think there is much monetary policy can do about it, it is just about long-term development plans, improving ease of doing business, fixing infrastructure, fixing security and anything that pushes up cost of production and distribution is going to keep inflation high regardless of what you do in terms of pulling cash out of the system.
How do you see Naira redesign impact inflation on the first quarter?
I believe that in the first quarter, the economy has lost about N10 trillion and I estimated it based on a modular I’ve been using since I was at NBS. When I say N10 trillion I don’t mean the economy would shrink, it means that nominal GDP would still grow but it would not grow as much as it would have grown without those constraints.
I would be surprised if GDP grow more than 2 per cent in the first quarter. I’m expecting 1.5 per cent and that is even assuming the oil sector picks up. But the oil sector doesn’t pick up, it might be less than 1 per cent because the economy is significantly dependent on cash and the informal sector has a huge cash component even those that do transactions through electronic means also had challenges as well. So, if I see anything more than 2 per cent I would be really surprised.
How would you assess Nigeria’s debt and how do we bring it down?
They always say debt is not the problem, but the ability to pay the debt is always the problem. We have significant problems paying our debt. And that’s why when the Minister of Finance said we don’t have debt problems people get upset and I understand what she means. If the debt to GDP is low means there’s a lot of revenue in GDP that has not been collected. That’s why your debt to GDP is low. So, if your debt to GDP is low and your debt to revenues is high, it is because you’re not collecting enough revenue from that GDP that you have. And that is large because the informal sector, which is about 40 per cent of the economy is more or less not paying taxes directly to the government.
So clearly, there’s a lot of money in that area that you can pull out and if you do that your debt-to-GDP ratio will go up and your debt-to-revenue ratio will improve. But the problem is there’s a lot of tax revenue out there that the government is unable to pull in.
Are there any optimistic outlook on the economy especially as the government transitions?
A new government is coming in, we’ve heard what they want to do, and most of the things I’ve read sound pretty interesting and sound. If it is done then I think there are some positives for the economy.
I don’t think those positives will be in 2023. There are a lot of bills that the outgoing administration introduced for example, the cautionary reforms in terms of electricity and so on and these are medium to longer-term benefits. So, there are signs of positives, but not in 2023.
So again, if all these things are done properly, I think that we have a chance to fix a lot of these macroeconomic and social imbalances and maybe also add that the global economy itself is going through a lot. It’s not just the Nigerian economy that is going through a lot of pressure right now, people have been talking about the possibility of a global recession and I’m probably one of the few people that disagree. People are looking at the growth rate went from 6 to 3 to 2.7 per cent and say It’s slowing down and I don’t see that all I see is a correction since COVID. Because we check the pre-COVID growth rates they were around 2.5 or 2.7 per cent.
But assuming the incoming administration focuses on the things that they say they want to do, they get the right people in the right places, give the people the free hand to do what they need to do, and access to the president so they can get things moving. And those three things. It’s not about selecting a very intelligent minister, it’s also about allowing that intelligent minister to work as well as giving him access. If those three things are in place, we would see more positive change.
So I would always be positive or optimistic about my country, especially since the things I’m hearing that we want to do are positive.
