Nigeria’s economy falls off the cliff, but it didn’t have to be so
LAST week, Nigeria’s finance minister Zainab Ahmed provided an honest and succinct assessment of the country’s financial position in which she said Africa’s most populous nation has been spending more on debt servicing than it was earning. Days later, the Economist Intelligence Unit, EIU said Nigeria had attained another dubious ranking with its debt service to revenue ratio becoming the world’s worst.
In the months leading to the assumption of office by President Muhammadu Buhari in 2015, he had chosen the able and diligent Ahmed Joda of blessed memory to lead the work of a transition committee to prepare the ground so his administration could hit the ground running. Or so we all thought.
On May 1, 2015, a well-appointed meeting of private sector leaders as well as youth leaders was held at a private office in Ikoyi to begin the process of collating input to the transition programme.
In the end, a robust proposal containing a well-researched documentation of Nigeria’s economic and social challenges and what the in-coming president must do, was handed to the new president.
Now we can tell that Buhari was either not interested or incapable of pursuing the noble course outlined in the report of the transition committee he himself had empaneled.
At the very first session of the Nigerian Economic Summit Group, NESG following his ascension to power, Buhari and his administration received a comprehensive report outlining the three scenarios ahead of Nigeria titled “Tough choices.” Oil prices had fallen dramatically, and Nigeria was told it needed to prepare for a likely contraction of the economy. Buhari failed to heed.
The year after, Nigeria entered into a debilitating economic recession for which the people were never prepared. It was a rude awakening. The impact of this recession and the one which followed on account of the oil price crisis was made worse by the pursuit by Buhari and the Central Bank of the so-called unorthodox measures or Nigerian homegrown policies which have become a euphemism for doing the wrong things. An escape from reality.
The finance minister said that in the first four months of this year, Nigeria earned just N1.63trn but spend a whooping N1.94trn servicing its public debt in the same period. In the four months that the country recorded revenues of N1.63trn, it spent a total of N4.7trn, recording a budget deficit of N3.09trn with only N773.63bn going to capital expenditure. The 2022 federal budget assumes a deficit of N6.39trn or just about twice that recorded in the four months to April 2022.
In the first quarter of this year, Nigeria’s total debt spiraled to N41.6trn from the N39.56trn recorded at the end of December last year. Other ugly features at the background of the minister’s address are that Nigeria has the highest out of school children in the world, the country bears the title of poverty capital of the world, the electricity grid has virtually collapsed, 30% of the crude oil produced is stolen and the insecurity once associated with the country’s Northeast has spread to many other parts of the country.
On top of this no new investment is coming to Nigeria on account of the so-called unorthodox policies that do well to repel investors from the country. In her address, the minister said spending on petrol subsidy continues to surge beyond budget estimates.
According to analysts at Telimer, Nigeria’s stubborn refusal to remove the costly petrol subsidy means that every US$10 increase in oil prices expands the budgetary cost of subsidies by 0.5% of GDP. As such, a rise in oil prices is a mixed blessing, helping to improve Nigeria’s external position but weighing heavily on its budget.
Years after Buhari came to power, he succumbed to mounting calls for him to present the nation with an economic plan. But his Economic recovery and growth plan, ERGP was a mere shopping list, one the NESG said lacked any reasonable implementation guide.
Even more, the central bank continued to pursue the same policies of capital control which brought Nigeria to its knees. While the apex banking institution is seeking to curb money in circulation by raising monetary rates as well as via a dubious cash reserve ratio regime, it maintains an open pipe to the federal government through ways and means.
The ability of the CBN to tame inflation through raising rates may be undermined by its continued deficit financing of the budget deficit, the Economist Intelligence Unit, EIU said last month.
According to the EIU, “the CBN has continued to print money for the federal government, whose overdraft facility with the CBN reached N19trn (US$46bn) in April 2022, up from N17.4trn at end-2021. All prudential rules on the government borrowing through the overdraft facility have long been broken.”
Oil prices have risen sharply this year but Nigeria does not benefit because of a combination of falling oil production and a shamefully high level of crude theft. Again, if Buhari had listened to the counsel he got through the report of the transition committee, the country will not be where it is today.
In that report, Buhari was told to outline and robust set of incentives for existing oil firms and attract new ones to keep the oil flowing. He chose not to do this and he instead embarked on the long, fruitless journey to a petroleum industry act which arrived too little and too late to make a real difference.
As bad as things are now, the prognosis for Nigeria’s medium term finances 2023-2025 present an even more frightening picture.
It shows that Nigeria’s debt service cost will continue to rise and with it a decreasing fall in allocation to badly needed infrastructure. On top of this, spending on recurrent expenditures will be stagnated as well.
Most of this is worsened by Nigeria’s insistence on maintaining its suffocating exchange rate regime. There is also not much on the horizon to suggest that oil production will rise dramatically because of the poor handling of relations with international oil companies that are voting with their feet by exiting