Stopping The Looming Economic Implosion.

Eze Onyekpere

Everywhere you turn in the Nigerian economy, it is bad and heart breaking news. Some examples will show the trend. For two quarters running since the beginning of the year, Nigeria has recorded negative growth and this has led it into a recession. Feelers from the third quarter that ended in September seem to suggest that the negative growth will continue.

 Again, the Consumer Price Index which measures inflation moved from 17.9 per cent in September to 18.3 per cent in October 2016. This has been a movement in the upward direction for the last one and half years from single digit inflation rate to the double digit that may likely move into the 20s on or before the end of the year. To worsen matters, there are discordant voices about the sustainability of the current fuel price regime. A likely increase based on the exchange rate volatility may facilitate major price increases across goods and services value chains. The unemployment rate stands at 13.3 per cent whilst the underemployment rate stands at 19.3 per cent; youth unemployment is 49.5 per cent. These figures are adjusted based on the new method introduced by the National Bureau of Statistics for calculating the employment/unemployment rates. Essentially, they could be more without the statistical gymnastics.

The NBS states the total value of capital imported into Nigeria in the third quarter of 2016 at $1,822.12m, which represents an increase of 74.84 per cent relative to the second quarter figures, and a fall of 33.70 per cent relative to the third quarter of 2015. Yes, there was an increase but it does not give much comfort when compared with the figures that came in from 2012 to the middle of 2015. The 2016 federal budget was premised on an exchange rate regime that was under N200 to $1 but today, this has depreciated to over N305 to $1 at the official window and over N450 to $1 in the street access window. The foreign reserves are less than $24bn, which is very low when compared to figures for the past 10 years.

Nigeria has entered a period of extreme uncertainty and volatility of key macroeconomic indicators. This makes nonsense of projections and planning process of rational economic agents and actors. On the fiscal side, there is a real fire on the mountain. According to the MTEF 2017-2019 which awaits legislative approval, Nigeria spent N609.517bn in debt service in the first half of 2016 whilst it earned N951.52bn as overall retained revenue in the same first half of 2016. Thus, debt service was 64 per cent of retained revenue for the first half of the year.The implication is that in 2016, if the trend in the first six months continues to the end of the year, Nigeria will dedicate almost two thirds of its retained revenue to service accumulated debts. Without accumulating any further debt, the government will only pay its salaries and cater for the infrastructural needs of the people with only 36 per cent of its retained revenues. Such a situation poses a great challenge to the government that will cater for the citizens and its running costs with only 36 per cent of its revenues. The usual escape route in such situations is to borrow more and reschedule the debts – merely shifting the evil days.

Again, according to the draft MTEF 2017-2019, for the first half of 2016, the country has so far spent N2,419.375bn and has thereby incurred a debt/deficit of N1,467.855bn. Thus, the retained revenue constitutes only 39.33 per cent of total expenditure in the first half of the year whilst borrowing funded 61 per cent of total half year expenditure. Total capital expenditure in the half year amounted to N159.062bn; the implication of the foregoing is that out of the N1,467.855bn which Nigeria borrowed, N1,308.793bn was spent on recurrent expenditure. This is against the provisions of the Fiscal Responsibility Act.

Fast forward to October 21 2016, only the sum of N635.770bn has been released based on warrants and authority to incur expenditure. The total capital vote for the year is about N1.58trillion. This release is less than 45 per cent of the approved capital vote.

Can the authorities sense an imminent danger that we may soon grind to a halt? An urgent, concrete and targeted action is needed to begin the process of restoration otherwise, there will be a heavy fiscal implosion. But who should lead this process? It is President Muhammadu Buhari and no one else. Happily, a good part of the process of restoration is administrative and requires opening up the economic governance space to new actors and adopting ordinary and common sense in our journey to regain the economic space.

The President should quickly roll out a coherent economic policy. This demand has been made by local and international actors including the World Bank/IMF, African Development Bank, Debt Management Office and several private sector operatives, etc. Nigeria needs an “economic war team” in the shape of an economic management team with actual powers to take policy decisions and practical steps subject to presidential approval.

This will lead us to stopping economic chants and mantras and begin to take positive action to economic recovery. For instance, the MTEF 2017-2019 while making a case for diversification of the economy of states that oil revenue will contribute 32.91 per cent, 33.08 per cent and 42.420 per cent respectively of the revenue in 2017, 2018 and 2019. On the other hand, non-oil revenue contributes 36.18 per cent, 37.10 per cent and 32.66 per cent respectively in 2017, 2018 and 2019. The implication of the foregoing is that despite the mantra of economic diversification, projected revenues from oil are expected to increase in the outer years of the medium term at a time the diversification efforts should have started yielding fruits. The oil revenue is expected to overtake the non-oilrevenue over the medium term. This goes to show that planning and forecasting are not in tandem with the stated objectives of government’s economic policy and that the Federal Government is not convinced that its efforts to diversify the economy will yield sufficient results to deviate from the norm of dominance of oil revenue.

Another implication is that there are no plans to increase local petroleum refining capacity, to add value to the raw and crude oil so that Nigeria can begin to earn income from other byproducts of petroleum aside from crude oil. Again, the utilisation of our flared and wasted gas resources is not part of the plan to increase revenue. It is submitted that apart from diversifying the economy, Nigeria has not explored and therefore needs to explore the revenue potential of the full value chain of the oil and gas industry through local refining of crude and processing of petrochemicals; full utilisation of gas through pipelines for the LNG, to power electricity generating plants, industries and homes as well as exporting gas to the West African nations and other easily connected parts of the African continent.

Further, the projections for non-oil revenues imply that the economy is not expected to make so much progress in production and consumption, hence the low Company Income Tax and Value Added Tax projections. If there is increased production in an economy, then the CIT base ought to increase and if consumption is increasing, then VAT ought to increase dramatically.

To be continued

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