Rafsanjani: Incoming Government Must Ensure Sustainability of Economic Plans
Economy
The fundamental roles of fiscal, monetary and trade policies in an open economy especially in terms of economic management cannot be over-emphasised as their effects often improve the living conditions of the populace through appropriate and effective micro-economic policies. This was the view of the Executive Director of the Civil Society Legislative Advocacy Centre, Auwal Musa Rafsanjani, who spoke with Funke Olaode on Nigeria’s economic challenges and the agenda for the incoming administration, at the Spring Meetings of the World Bank and the IMF in Washington, DC, United States of America, last week
Given the fact that the Nigerian economy is very challenged and the fact that we need to improve on it, it is absolutely necessary that our incoming government takes the necessary proactive measures to ensure that our economic agenda is addressed or rather there should be economic reforms that will ensure good policies, that should be sound, that is widely acceptable and administratively feasible to achieve sustainable macroeconomic objectives.
While the Nigerian economy rebounded after the difficult years of COVID-19, growing 3.5% in the first three quarters of 2022, the recovery has brought more hardship on Nigerians, and socio-economic conditions in Nigeria have been on a steady decline ever since. With the conclusion of the general elections and pending outcomes of result contestations, it is instructive to start conversations around the right economic policy choices for the incoming administration as they would have a significant impact on the country’s economic profile.
Economic Sustainability Plan
The COVID-19 pandemic precipitated serious economic distortions in the Nigerian economy leading to a decline in oil prices, foreign reserves, GDP growth, an increase in unemployment and inflation, depreciation of the exchange rate as well as a fall in banks’ lending to the private sector. The Economic Sustainability Plan was a robust and well-articulated plan launched on March 30, 2020, as Nigeria’s National Economic Resilience (NER) plan in response to the outbreak of the pandemic. It aimed to inject a stimulus package of N2.3 trillion into the economy with the view to preventing businesses from total collapse and retaining employment in the country; create jobs using agriculture, manufacturing, and services; invest in infrastructural facilities such as roads, bridges, solar power, and information technologies as well as invest in the poor through social investment schemes.
While the ESP was noted to have helped Nigeria exit recession in record time with more than five per cent growth in the economy, saved over one million jobs and forestalled the closure of over 150,000 small businesses hit by COVID-19, there were huge gaps for improvement. Despite efforts to deepen the wide variety of Social Intervention Programmes (NSIP) to help those in poverty, its attempts were clearly affected by the high presence of corruption, mismanagement, poor accountability, and unemployment that aggravated existing inequalities. The nation’s programmes are failing to adequately lower the rates of poverty and the programme has been characterised by allegations of politicisation and corruption. The incoming government must ensure the sustainability of economic plans that will aid development and nail her citizenry out of poverty.
National Development Plan
Nigeria’s National Development Plan for the period 2021 and 2025 was expected to succeed the Nigeria Vision 20:2020 Economic Transformation Blueprint, Economic Recovery and Growth Plan (ERGP) 2017-2020 and the Economic Sustainability Plan 2020 that elapsed in the year 2020. To achieve its objectives of building a vast infrastructure development, promoting macro-economic stability, improve living conditions among others, an investment of about N348.1 trillion from both the public and the private sectors is estimated between 2021-2025 to fund 31 sectoral priorities classified under five thematic areas- Economic growth and development, infrastructure, public administration, human capital development, and social development.
All the aforementioned policies, namely ERGP, ESP, and the NDP 2021-2025 were geared towards sustainable growth, job creation, and real poverty reduction with broad strategic objectives and a defined time frame. Unlike the previous plans, the NDP 2021-2025 sectoral objectives target by 2025 is not limited to the microeconomic level. All specific sectoral programme objectives have their specific targets at the end of the implementation period (i.e., 2025). This is an innovation by the NDP National Steering Committee during the preparation stage. It was aimed at linking the plan with various sustainable development goals. This is not the case with previous plans. There is nowhere in the ERGP and ESP where the target was designed for each of the programmes’ objectives at the end of the implementation period. This policy approach allows the government to determine which programme strategy is working and which one is not working at the end of the implementation period. Indeed, it allows flexibility. The issue then remains a legitimate public concern for its effective implementation.
Unsustainable Debts
With limited access to further financing on concessional terms, and with a growing presence and influence of private creditors in its debt profile, Nigeria’s national debt is growing and increasingly putting the country in a precarious situation, with significant implications for human rights, including education and health. The country’s total public debt stock as of September 2022 was N44trillion (103 billion dollars) and the incoming administration would inherit a debt burden of N77trillion by June 2023, if the proposed N23.7 trillion CBN loan is securitised, this will only worsen with the poor revenue generation and endemic effect of exchange rate volatility.
While the Nigeria Debt Sustainability Analysis (DSA) and Stress Tests suggest that Nigeria’s debt to GDP remains at moderate risk of debt distress, they remain vulnerable to revenue and export shocks which are major determinants of borrowing capacity. A more objective analysis of the extent of the crisis assessed based on the debt service to revenue ratio to determine debt repayment ability without impeding national development goals, however, shows that Nigeria is in breach of its external debt to revenue ratio limit of 18 per cent and stands at 21.7%. Nigeria spent N2.3 trillion, an equivalent amount to its ESP in 2019 on debt servicing and for the first time in its history, debt servicing surpassed its revenue in April 2022, when retained earnings were just N1.6 trillion but spending on debt servicing reached N1.9 trillion, representing 118.7% of the total retained revenue for the period.
In addition to this, there are plans by the government to spend about $800 million as part of the post-petroleum subsidy palliatives. It is reported that Nigeria plans to use this fund which is the first tranche of the palliatives as a cash transfer to 50 million Nigerians. It is important that this be investigated and for all stakeholders to be sure that this is the best use of these funds which is a loan from the world bank to be paid back by Nigeria in the future. There are other policies and areas that must be looked into to make the country work economically such as fiscal profile, revenue mobilization, monetary policy inconsistencies etc
Implementation of Sustainable Development Policies
We have a long way to go towards revitalising the economy, but the incoming government needs to demonstrate the political will to at least ensure the transparent and accountable implementation of strategic and sustainable developmental policies. The Nigerian economy must at least grow at 7-8 per cent a year for five to ten years based on an investment-led strategy to avoid the possibility of multi-dimensional poverty, debt, and insecurity consuming us in the next decade. Over the last decade, the country has spent over N10 trillion on fuel subsidies, about 15.5 trillion on Capital Expenditure, 2.5 trillion on Health, and about 3.9 trillion on education. In its latest National Multidimensional Poverty Index report the National Bureau of Statistics (NBS) said that 63 per cent of Nigerians were poor due to a lack of access to health, education, living standards, employment, and security. The 133 million poor Nigerians recorded by the NBS, exceeded the World Bank’s projection for Nigeria in 2022. The incoming government needs to sustain strategic policies with the potential of driving economic growth and development.
Moving forward, deliberate efforts must be made to avert the misplacement of priorities and reverse some of the current policies and effectively implement new ones. All leakages associated with government revenue must be blocked (oil theft, skewed concessions, fuel subsidy, etc.), and a wholesome review of the tax administration to make it more equitable and investor friendly. The nation seems to be behind in all economic growth fundamentals, except a large market, which if not harnessed might become a curse as the implementation of the Africa Continental Free Trade Area (AfCFTA) agreement swings gains more steam.
Boosting of Revenue Generation
Poor revenue generation has been identified as a major driver of debt accumulation and therefore there’s a need to improve revenue generation through taxes. All over the world taxes have been acknowledged as the most sustainable sources of government revenue, so the Nigerian government must see and explore progressive taxation as a means of boosting revenue and ensuring current and future tax revenues can meet the current and future government’s people-centred expenditure. The incoming government should prioritise engagement and enlightenment of taxpayers to educate them on their obligations; adoption of special tax drives and campaigns; aggressive anti-corruption policies and implementation; creation of incentives to increase exports.
Reducing Reliance on Borrowing
There is a need to strictly adhere to the provision of the law on maintaining concessional loans as this poses limited debt risk and incorporates a mechanism to work out effective restructuring and negotiate debt relief initiatives which are quite impossible with commercial creditors. Private creditors’ loans are expensive for a nation such as Nigeria that struggles with revenue generation and as such this frontier of borrowing should be discouraged. Also, the incoming government must strengthen the Foreign Exchange Policy to reduce the impact of volatility on loan repayment and thereby reduce the public debt burden that arises from local currency devaluation.
Also, the need for public debt transparency is born out of the imminent danger of the public debt crisis as brought to the fore by the high sovereign debt figure and the roles of private creditors in the scheme of things. Public disclosure of critical information such as terms and conditions of loans, particularly those of private creditors will help the country stay alert to any hidden danger in exploring such loan frontiers. The Debt Management Office should include on its website sectors where loan terms and conditions can be proactively published including names and details of bondholders. In this regard, the establishment of an independent committee that comprises civil society representatives, the Auditor General Office, the Ministry of Finance, and the DMO to carry out an independent review of all future loan requests with the view to determine their variability and importance.
Effective implementation of the Petroleum Industry Act, including its provisions for the removal of subsidies and the implementation of open data reforms like beneficial ownership transparency and contract transparency requirements; and the rehabilitation of oil refineries to boost local refining capacity towards meeting self-sufficiency will place the country on a pedestal of economic growth.
