How to execute a growth plan
Earlier this month, President Muhammadu Buhari launched the Economic Recovery and Growth Plan (ERGP). The plan is to restore the Nigerian economy from recession to growth by 2020. The ERGP is to reduce inflation from 19 per cent to seven per cent. Two, it is to restore the growth of the Gross Domestic Product (GDP) through agriculture. Three, ERGP is established to boost power, the energy mix and renewable energy. Four, it is to make Nigeria become an exporter of petroleum products by 2020. Finally, it is to boost the anti-corruption and national security efforts.
In the aftermath of the failure of previous administrations to fulfill their economic promises such as housing for all in the year 2000; visions 2010, 2020 and others, it looks pedestrian for Buhari to launch another short-term National Poverty Alleviation Programme. Since ERGP isn’t captured in the 2017 budget, it is assumed the Federal Government (FG) will borrow to execute it. However, we believe it is unwise to borrow money either internally or from abroad to finance ERGP. Though this plan is aimed at lifting the economy from the doldrums, the quality and value of spending has to be better than they were in previous administrations.
Indeed, the expansion of the economy which ERGP connotes, must have a limited lifespan otherwise it will crowd out lending to the real sector comprising infrastructure, employment and a new electrical power structure. The data released for the end of 2016 by the Debt Management Office (DMO) shows that the debt burden has soared from N354 billion in 2010 to N1.23 trillion in 2015. Domestic expenditure accounts for more than 90 per cent of the total debt service because government’s obligations are predominantly loans obtained from multilateral and bilateral agencies which are cheaper than its domestic borrowing.
The debt office’s medium term debt strategy seeks a 60 to 40 split between domestic and external borrowing, compared with 76 to 24 blend at the end of 2016. However, the Eurobond of February 2017 was a great success because it revealed Nigeria’s healthy external trade balance sheet. Total debt service in 2016 reached 35.4 per cent of FG revenue. This ratio is particularly alarming because revenue collection in Nigeria has been very poor. The plummeting oil price since 2014 highlighted the derisory level of non-oil tax collection.
The ERGP will force up the total debt service ratio further to 38.1 per cent by 2018 before easing out to 34.5 per cent by the end of the plan period of 2020. The foregoing shifts deficit financing from 54 per cent in domestic matters to 66 per cent by 2018. By 2020 our external debt will amount to 72 per cent deficit. In the circumstance, DMO will need to procure a deficit of N1.25 trillion in the 2017 budget- through raising funds from its monthly auction of bonds. That was started by Buhari through raising N535 billion from auctions in February 2017.
There is need for caution, however, for sourcing for money via bonds will reduce a rigorous management of public finance. The ratio for the public rather than the sovereign debt stock would be about 25 per cent after making allowances for domestic borrowings of states; AMCON bonds and takings from NNPC. The FG debt of N2.2 trillion unearthed last December adds to the impropriety of borrowing to fund ERGP.
For the last leg of the ERGP mandate, to boost the anti-corruption war and national security, this administration has too narrow a definition of corruption. Theirs is only to catch a thief. They are doing nothing on cleaning the stable and building institutions that will stand the test of time. Sadly, our culture has become corrupt. This means to curb the malaise, our economic team must contain disparate disciplines. Like in the USA, the Council of Economic Advisers which overlooks the economy is staffed by about 30 people, 21 of which are professional economists, statisticians and demographers.
When you catch thieves that you cannot jail, it means the lawyers, the prosecutors and the judges are corrupt. How then do you hope to beat corruption? This means, to win this war government must evolve a strategy. One way is to install expenditure tracking, a mechanism which must include tracking government foreign transactions, even including the presidential medical vacation abroad. This economy isn’t as buoyant as it is made out to be. Corruption-funded companies are folding up and laying people off. Unemployment is exacerbated by tertiary institutions graduating students who cannot get jobs.
Indeed, the economy will only be better when the north drops its opposition to the Host and Impacted Community Dividends clause in the Petroleum Industry Bill. This gives members of the host community a stake in the wells in their communities. Such recognition of the host community guarantees zero vandalism for the simple reason that one does not vandalise one’s own property. Northerners opposition to the passage of PIB amounts to making Nigeria poorer in order to stop your neighbour from getting richer.
Finally, to make ERGP work, both the FG and the states must appoint boards to monitor, manage and execute its strategies. Also, the budget minister must ask for a separate budget for the plan. Better still, the National Assembly should create the Council of Economic Advisers to supervise the economy to enable Nigeria overcome her economic backwardness. Fortunately, the International Monetary Fund came calling weeks ago, urging Nigeria to take urgent steps to revamp our economy. It advised that priority be given refurbishing infrastructure, enhancing the business environment; improving access to financing small and medium enterprises and strengthening the anti- corruption war.
Also, the Fund specifically recommended that FG increases value added tax, excise duties and the removal of oil subsidy and the harmonisation of our many exchange rates. Furthermore, a CBN release shows FG had a deficit of N3.2 trillion carry over from 2016. This huge domestic debt makes it necessary for us to fix the debt burden through the enthronement of a proper team of economists. Thus, FG and state governments should stop domestic borrowing for it crowds out SME lending. We should cultivate greater self reliance if we are to improve our economic fortunes.