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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