It
has been an interesting but depressing week with developments occurring
at a frenzied pace. But the major issue for this discourse is Nigeria’s
current economic predicament arising from falling crude oil prices and
the proposed austerity measures announced by the Minister of Finance and
Coordinating Minister for the Economy, Ngozi Okonjo-Iweala.
The
price of crude oil which the country relies on for the major funding of
national and state budgets tumbled from over $100 per barrel to between
$70 and $80 per barrel. And as soon as this happened, Nigeria’s
economic fundamentals began to shake and dance in an uncoordinated
manner.
The
naira has taken a dive and exchanges for about N177 to the dollar. On
the other hand, the Nigerian Stock Exchange lost N477bn in market
capitalisation in the last one week while foreign portfolio investors
appear to be in a haste to cut short their losses by selling off their
stock holdings. Inflation is threatening to move up again and suddenly,
all seems not well with the economic ship of state.
The
government had pegged the benchmark price of crude oil at $78pb in the
2015-2017 Medium Term Expenditure Framework. It has been forced to
review the benchmark to $73 in the light of new developments.
The
Federal Government announced an upward revision of revenue targets for
the Federal Inland Revenue Services, reduction in foreign travel and
training and increased taxation of luxury goods as part of its austerity
measures.
The
first point of departure is that the new benchmark of $73pb is
unrealistic and, apparently, not based on any empirical foundation. It
is mere wishful thinking that the price of crude will stay high. If the
trajectory of developments in the international political cum economic
environment is taken into consideration, there is every need for a
realistic benchmark which will be between $55pb and $60pb. The apparent
slow down in major world economies and the oversupply of crude oil in
the world market show that the price decline will be with us for a
while.
The
reduction of international travel and training, although a welcome
development, has been on the agenda of cost reduction for years. The
savings from this cost head will not be much. A heavy tax on luxury
goods which is a welcome development may not generate enough revenue to
fill the gap. In all, Okonjo-Iweala made no projections on how much will
accrue from the savings or the new revenue expected to fund public
expenditure.
Nigerians will recall the boast by the managers of
the economy about strong macroeconomic fundamentals. Yes, strong
macroeconomic fundamentals anchored on the high price of crude oil and
not on any innovation and new ideas implemented by our economic
managers. They gave the impression that all was well with the economy
and that they had stabilised the economic ship of the state. In the
process, we have lost count of awards they have received for the
“magical and wonderful” management of the economy. But now is the time
to prove the technocratic credentials of whoever has been in charge of
the management of the economy.
With only $4bn left in the fiscal
buffer of Excess Crude Account and the planned withdrawal of $2bn from
the account, Nigeria will only be left with about $2bn going into the
New Year. The last time Nigeria experienced sharp declines in the oil
price, we were better prepared as we had about $20bn in the Excess Crude
Account. Now, the elbow room for tactical economic manouvres has been
narrowed because of our poor savings culture. It will be recalled that
our governors are in court for a declaration that the Excess Crude
Account is illegal and all monies should be shared in accordance with
the spirit of Section 162 of the 1999 constitution.
Apparently,
no lessons have been learnt from our recent crude oil price slump
experiences. Nigeria is in this situation because of the flight of
reason and common sense. No family consumes all that it earns without
putting away some part of the income as savings in a saving for the
rainy day account. This is what the Excess Crude Account was meant to
serve. With oil prices in excess of $100pb in the last four years, it is
disheartening to recall the level of profligacy of the leadership at
all levels – from the federal to the local government levels. They
wasted the resources with no major infrastructure or human capital
development projects to show. As if that was not enough, the leadership
has chalked up loans in excess of $65bn since our exit from the Paris
Club debts. Again, there is nothing to show for the debt against the
background of the provisions of the Fiscal Responsibility Act which
authorise borrowing only for capital projects or human capital
development. Where are the projects – ongoing or completed and the new
investments in human capital worth $65bn?
At the Citizens Wealth
Platform, a coalition of civil society groups, being a platform
dedicated to ensuring that public resources are made to work and be of
benefit to all, we had over the last four years documented wasteful and
frivolous expenditure proposals in the federal budget and submitted our
findings to the leadership and each member of the National Assembly and
the managers of the economy. The National Assembly was expected to weed
out the frivolities before approving the budget. On the four occasions,
we were ignored and treated with contempt and levity.
The
National Assembly insisted on collecting N150bn each year; the
presidency used N300m for plates and cutleries and acquired a fleet of
jets; pilgrims were sponsored with billions of naira and some
departments of governments used up over N700,000 a day on stationery.
Computer hardware and software were easy targets and means of cornering
public resources while public officers who have benefitted from
monetisation still came back to the treasury to collect benefits for the
same cost heads. Special advisers, assistants and all sorts of
personnel were employed by political office holders at the public
expense while the quality of governance plummeted. There were all manner
of frivolities and wasteful votes including security votes for the
Ministry of Finance. Indeed, there was a competition among the
Ministries, Departments and Agencies as to which one will be most
wasteful and fiscally irresponsible through cornering resources they did
not need.
There is no magic wand that can revive and get our
economy back to normal than the restoration of common sense and reason
in public resource management. We have been borrowing to pay for the
ostentatious lifestyle of our men and women of power. We have refused to
invest in infrastructure, capital and human development; refused
through the dogmatic ideology of our economic managers to build new
refineries even under a PPP model; we import every imaginable item and
have so far played jokes with power sector reforms. It is time to stop
these unfortunate methods of running the economy down while pretending
to be keeping it afloat. We need to cut back on the votes of the key
centres of power as a strong message to other public institutions. If
there must be austerity, it should be about leadership by example by the
key levers of power- the Presidency and the National Assembly. It is
also time to take a very hard and critical look about the possible
short, medium and long term wins that will arise from the implementation
of the Oronsanye Committee report.
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