Making tough economic choices
I was thinking intensely along the lines of the tough choices which the Buhari’s administration have to make after contemplating the theme of the recently concluded Economic Summit which is: Tough Choices, achieving competitiveness, inclusive growth and sustainability. The Nigerian Economic Summit Group (NESG) has so far provided a robust and veritable platform for the promotion of public sector/ private sector dialogue that goes back more than 20 years now.
My initial take on the matter is that there are no real tough choices as far as the economy is concerned. What is ideal to be done is often not contestable. It is often well known and canvassed. For instance, no one is in doubt that there is the need to diversify the economic base away from the injurious and unsustainable dependence on the oil sector and it has been work in progress since 1986 following the introduction of the Structural Adjustment Program (SAP), nor is there any quibble about discontinuing the fraud infested subsidy regime which is inimical to the developmental aspirations of the country.
The challenge is finding the political will to initiate and take the rightful decisions. Those in authority are often as should be expected concerned about the likely fallout of such a decision. What if there is resistance from organised labour which is really not such an obstacle as what is really required in the circumstance is to go into negotiation with such organised bodies to secure their buy-in and ensure that everyone is on board. But the more difficult aspect in taking such decisions is if the anticipated outcome was not realised because of the occurrence of unanticipated developments often which could bother on the fact that the resource implication of such decisions have not been properly factored in or sometimes it could arise from the realisation of the unavailability of requisite capacity.
The economic policy of this administration has no choice but to be expansionary and accommodative. But the difficulty in undertaking the expansionary thrust of economic policy is that we would have to risk in the interim spike in prices as the inflationary conditions worsen. It would also mean that if this is the preferred thrust of policy that the monetary authorities would have to tag along by, for instance, working for across the board reduction on the level of interest rates by adopting measures that would deliberately inject more liquidity into the economy risking in the process the undermining of its price and exchange stability core mandate.
Expansionary fiscal policy has far reaching implications for the preparation of the annual budget. The administration has advertised its preference for the adoption of the zero-based budgeting procedure which is realistic considering the dire straits we find ourselves in as a country. The term zero-based budget is meaningless when we simply speak of zero budget, which often slips through during conversion. There is zero-sum budget but for emphasis, there is nothing like zero budget, which probably explains why the vice president observed that some people have concluded that this administration because of its tight fisted and austere orientation is not even prepared to spend any money.
If we adopt expansionary policy thrust there will be the need to revisit the Fiscal Responsibility Act to remove the cap of three per cent of deficit to GDP to be able to accommodate deficit beyond this limit as is the case in most other countries within the sub region and beyond. In an attempt to address the perennial issue of the lopsided nature of the budget in its relatively higher allocation to recurrent expenditure in the process undermining development which can follow from robust capital expenditure, it might be required to broaden the tax base and therefore the ratio of tax/GDP which the country now enjoys which compares unfavourably with that of most other countries even in the sub region to boost income from this source.
Is the country prepared to risk increasing the tax rate or simply make an attempt to bring in more tax payers into the tax net and is either of the options able to satisfy the needs of the country? The conversation regarding rationalisation and streamlining the Ministries, Departments and Agencies to reflect the austere time confronting the country and the imperatives for reduction of the amount now spent on recurrent expenditure must receive due and necessary attention. And there is the need to clearly prioritise agriculture and education as preferred sectors for the allocation of budget expenditures.
One of the tough decisions which this administration has to confront sooner than later is whether to stop the payment of subsidy. Despite the known fact that the amount currently spent on subsidy is bloated by corrupt practices and therefore its retention amounts to the rest of us subsidizing some greedy and unpatriotic individuals, the administration is still contemplating the removal of subsidy fearing its likely effect on the poor and downtrodden.
But what is required is simply to agree the introduction of some palliatives to act as buffer to absorb the certain follow through of price increases. We should go into dialogue with organised labour to educate them regarding the misapplication of resources which the payment of subsidy in its current form represents and that it’s in their patriotic best interest to cooperate for its removal.
We cannot improve on the country’s competitiveness if we do not take steps to guarantee the sanctity of contracts. I listened to Dr. Wale Babalakin recount his experience with going into the public, private, partnership scheme and it is mind boggling. And this experience is now common knowledge amongst would be investors and we still wonder why the country’s record in attracting Direct Foreign Investments is not as should be expected. We would also have to act to remove lack of continuity of policies as another major bottleneck in this connection. We would have to take deliberate steps to build institutions and deemphasize the strong man syndrome.
There are most certainly tough choices confronting and staring us on the face and the earlier we rise to the challenge this portends, the better for the developmental aspirations of this potentially great country.
Dr. Chizea wrote from Lagos.