By Centre for Social Justice Limited by Guarantee
Centre for Social Justice (CSJ), a Nigerian Knowledge Institution working inter alia on economic and fiscal governance presents this preliminary response to the ministerial briefing on the parametres of the MTEF 2018-2020. It is pertinent to state that beyond the slides presented at the briefing, the details of the assumptions behind the parametres have not been made publicly available. Fit and good practices demand that the consultation paper should have been in the public domain not less than two weeks before the consultation to give Nigerians a good opportunity to study, understand and respond to same. We will therefore respond to some of the key issues seriatim.
- THE PARAMETRES
(I) N7.9Trillion Proposed Expenditure: The proposal to spend N7.9trillion in 2018 which is 6% more than the appropriation of 2017, being the sum of USD25.85 billion; divided per capita over 180 million Nigerians, this amounts to a paltry N43,888 per Nigerian. The increase would have been a very welcome development if we are very sure of the sources of its financing or if we are not banking on a good dose of deficit financing. However, it is affirmed that Nigeria needs more than this sum to meet its pressing developmental needs, especially in the infrastructure terrain considering the paucity of investors and public private partnerships.
(II) Oil Production and the Benchmark: The decision to fix the oil production at 2.3million barrels a day shows our continued fixation with oil rents. This is an increase from the 2.2 million approved in 2017. However, with proposed cuts by the Organisation of Petroleum Exporting Countries (OPEC), this production volume seems ambitious and may not be realistic in the circumstances. Even if we have the capacity to produce this volume, the dynamics of the international oil market may not likely allow us to produce this much. Further, fixing the oil benchmark price at 45USD is overly optimistic. Developments in technology and climate change dynamics point to a progressive reduction in demand for crude oil over the next coming years. The benchmark may not be realized.
(III) The Deficit: The fiscal deficit is expected to rise to N2.77 trillion in 2018 from the current N2.35 trillion in 2017. The statement credited to the Minister that “we are maintaining our deficit and debts within sustainable limits. Debt financing will be restructured gradually in favour of foreign financing as part of a strategy to lower debt service burden and free up more fiscal space for the private sector” is a bit contradictory. More foreign borrowing at a time of currency volatility, when exports are falling, may not be the best option in borrowing. For the first half of the year 2017, it has been reported by the Monetary Policy Committee of the Central Bank of Nigeria in its July Meeting that FGN incurred a deficit financing of N2.51trillion. Prorating with this dynamic will create a deficit exceeding N5 trillion at the end of the year 2017. This does not appear sustainable in the short, medium to the long term. Our debt is growing in geometric proportions without infrastructure and regenerative capital investments to show for it as demanded in the Fiscal Responsibility Act.
(IV) Expected Revenues: Increasing expected revenue at a time when the revenues that were due in the previous year (2016) underperformed is another exercise in unnecessary optimism. Evidently, if the expected revenues had been coming in as projected in 2017, FGN would not have created the N2.51 trillion deficit financing.
(V) Growth Rate: For a country that is still in recession in the third quarter of 2017 to be planning to do 4.8% growth in 2018 will be a dramatic and quantum leap which the economy has not been sufficiently primed to do. If the projection remains in the realm of being motivational, that is good enough. Again, this parameter is overly optimistic.
FGN needs to rethinks its economic policies so that it can attract more foreign investors and unlock available local capital. The political process reflects and breathes down on the economic and social processes. Nigeria needs to unlock her potentials and drive the economy away from its crude oil dependence through a process of evidence led restructuring that allows the states or groups of states to take targeted, concrete and calculated steps to improve infrastructure, ease of doing business, access to credit, land reforms, etc.