Of unpaid salaries and our public finance

There is a looming fiscal crisis in Nigeria due to drop in government revenue from crude oil sale. Several states, including some oil producing states, are several months in default of their monthly salary obligations to civil servants. As at the time of writing this, state governors in Nigeria are said to have converged in Abuja, cap in hand, to explore bailout options with the Federal Government, itself reportedly in arrears of its monthly salary obligation to civil servants to the tune of about N400 billion – a case of a bailor also in awful need of a deliverer.

Phocylides, a gnomic poet of Greek origin born around 560 BC, could not have captured our dilemma more succinctly when he admonished thus: “When a man begins to be rich [or has an appearance of riches, in the Nigerian case], he should practice virtue.” Centuries after his death, we, as a people, have put this instructive caution in abeyance and embarked on a flight to Greece (a country in dire financial strait) not for any noble aims. Phocylides may have offered his thought under a different existential and historical context, but more than ever, the lesson remains supremely relevant and, indeed, a purveyor of higher truth that speaks to our present economic quagmire as a nation.

By design, Nigeria has switched to a fiscal-crisis mode. Governance and government at all levels are avoidably distressed, and anxiety beclouds the future. Worse still, there are no indications of an impending reprieve, at least not in the short term. If not well managed, the contagion effect will soon spill over to the private sector. At this critical time, banks, more especially those with significant public sector fund in their deposit mix, may need to put in place adequate liquidity and asset management strategy to weather the storm regardless of the fact that public sector funds as a percentage of total deposits in Nigerian banks dipped from 25 percent in January to 9 percent in April 2015.

But how did we get here, again? On the surface, the falling crude price and the resultant revenue loss to oil exporting countries is easily adduced as the causal factor, partly true. Fundamentally, the state of our public finance is borne out of a more peculiar quandary which, in summary, is our collective lack of capacity to labour for posterity. How else would you explain that on several occasions, not a few voices actually foretold the unfolding fiscal turmoil, yet nobody took heed? Or how do we rationalize our renewed propensity for loans after the Obasanjo administration liberated us from the excessive debt burden, and what do we have to show for the over N32.2 trillion (circa $190 billion) earned as federally collected revenue in addition to internally generated revenue by states including FCT from 2008-2012?

Conventional wisdom would ordinarily suggest that in a fragile, structurally-deficient and commodity-dependent economy which is highly susceptible to volatile swings in the international price of crude oil, prudent management of resources and sustainable appetite for debt should be the sensible choice, in fact the only choice. But no, the fiduciaries of our resources have a different idea – they will not modulate their cravings. Why save for a rainy day when there are developmental (ghost more like) projects to execute was the singsong. Today, we can see the ghosts, where are the projects?

The spending spree did not stop with oil earnings. Governments at all levels and across party lines renewed their dangerous flirtation with toxic debt accumulation. Today, Nigeria’s total debt profile is on the rise and reportedly stands at about N13.5 trillion (circa $67 billion). After accumulating so much debt, the three tiers of government are now reeling under the pang of illiquidity occasioned by revenue drop and loan obligations, with little or no room for financial flexibility. Something tells me the simple rule of moderate financial leverage in a volatile revenue scenario applies to public finance as much as it is relevant to corporate finance. As Abraham Lincoln noted in his address to the people of Illinois on March 4, 1843, “The system of loans is but temporary in its nature and must soon explode. It is a system not only ruinous while it lasts, but one that must soon fail and leave us destitute. As an individual who undertakes to live by borrowing soon found his original means devoured by interest and next, no one left to borrow from, so must it be with government.”

In 2014, a presidential spokesman, of the sons of Jacob, an erstwhile role model of some sort (though from a distance), summoned the flawed logic of debt/GDP ratio as an indicative threshold to justify government’s unsustainable borrowing. I took no time to reprove him. Such justification is superstitious; it is a mere academic twist which does not accurately reflect a country’s borrowing capacity, at least in the context of our economic structure and realities. Gross Domestic Product, just like profit, is not the source of debt repayment – cash is. In certain climes, GDP could qualify as a proxy for government revenue potential but not in this economy.

To be clear, the use of debt to fund government programmes is not necessarily bad and in certain instances even encouraged, especially where such fund is properly allocated and channelled towards meaningful investment in social infrastructure for improved social opportunities. But the sore reality here is – when you think the proceeds of loans/bonds are being utilized to finance transmission lines, rail tracks, roads, toll gates, helicopters, they are, in reality, often “repackaged” to fund unlevered private brothels, apple-eating foreign prostitutes and other bizarre projects (Paul Rosenstein-Rodin, you were right) with only cosmetic evidence to show for its original purpose. This is the real tragedy of our public finance.

I made a point in my piece on the Petroleum Industry Bill sometime last year: our ability and willingness to legislate and enforce temperance as a moral code is a virtue and indeed a condition precedent if we really desire true change, not more of the same. Virtue does not lend itself to waiver and we cannot, must not, defer it as a condition subsequent. Now that the chickens have come home to roost, who will bell the cat? Governments at all levels and other arms need not look too far to find a solution. Come to think of it, how much land does a man really need? The answer does not lie with Leo Tolstoy.

Glenn Olowojaiye