Four years, not a moment to lose

Bola Tinubu has something to prove in today’s formal handover of presidential power. The official turnout at the polls of 27 per cent was the lowest since the return of civil rule in 1999. We might have thought that the emergence of a third contender with a strong media campaign would bring out the voters.

The reverse happened, for which the outgoing administration has offered several explanations of varying degrees of plausibility: improved technology (and therefore less fraud), cash shortages due to the CBN’s re-monetization, fuel scarcity, the lethargy of young voters and the reality that voter registration provides Nigerians with another proof of ID. Tinubu secured 37 per cent of the vote on a very poor turnout according to the electoral commission (INEC) and cannot be said to be carrying the country behind him.

A message of the Tinubu campaign team was that their man would be decisive by making prompt and impressive ministerial appointments, and would transform revenue generation. The team harked back to his record as governor of Lagos State (1999-2007). On appointments, Tinubu is likely to compare favourably with the two terms of the Buhari administration, which was marked by ministerial underperformance at the FGN level. To be honest, can we name most ministers, such was their modest impact?

We can also hope that the presidency will enjoy good relations with the legislature, similar to Buhari Two (and in contrast to Buhari One). His All Progressives Congress has a clear majority in the Senate and is just short in the House of Representatives but should be able to cobble together enough votes for its purposes.

On the campaign trail, the team offered the earth to the voters, which is standard practice in elections globally. For the record we should recall that promises made at a public event at Chatham House in London in December included student loans for all, huge investment in schools, a transformation of teacher training, more soldiers in uniform and more drones for the Niger Delta.

These spending pledges, which have probably been forgotten by all but policy obsessives and campaigning journalists, require a boost to revenue generation. The fiscal legacy is dire. We recall the note left by the outgoing UK chief secretary to the Treasury for his successor after the general election in May 2010. Intended as a joke by Liam Byrne, it read that he was “afraid to tell you there’s no money left”.

Federally collected revenue of N12.7trn (ie before distribution across the three tiers of government) in 2022 was equivalent to 6.4 per cent of nominal GDP. An improvement on the previous year’s 5.9 per cent, Nigeria’s revenue collection is the lowest in the world in GDP terms according to World Bank data. The comparable ratio for Ghana, a small oil producer, is 15.7 per cent, and for Kenya, which has no oil, 16.0 per cent in 2021. Nigeria’s ratio, even allowing for the struggles of the oil industry, is pitiful.

We draw on the implementation reports from the Budget Office of the Federation to highlight the unenviable fiscal legacy for Tinubu. (They are less timely but more detailed and less subject to drastic revision than the CBN data series.) Total FGN debt service of N4.2trn in 2021 including interest on the ways and means advances from the CBN represented 91 per cent of total inflows into the FGN budget of N4.6trn. Capital spending was limited to N1.9trn and yet the deficit for the year hit N6.4trn, breaching the ceiling of 3.0 per cent of GDP set in the Fiscal Responsibility Act of 2007.

The implementation reports cover H1 2022, for which the position was worse: total debt service actually exceeded total inflows and the deficit soared to N5.5trn in the six months. The Debt Management Office (DMO) is set a funding target each year, divided between domestic and external borrowing. It invariably meets the target because it is a well-run agency and because it can count on the support of domestic institutional investors to bid for FGN bonds at its monthly auctions.

Figures from the regulator (Pencom) for March show that the bonds represented 63 per cent of the PFAs’ assets under management.The unfunded part of the deficit is covered by the CBN overdraft (ways and means advances), which has allowed the Buhari administration to pursue an expansionary stance and resist calls for fiscal discipline.

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The FGN could enter into a credit arrangement with the IMF but, as in Ghana’s extended credit facility signed earlier this month, would be blocked from borrowing from the central bank. The FGN has never borrowed from the Fund with conditionality attached. It is unlikely to start under Tinubu, who belongs to the generation that believes an IMF credit somehow breaches national sovereignty.

It will therefore have to impose the discipline itself if it is to avoid the trap of soaring deficits and domestic interest rates, and an unsustainable debt burden. Discipline in this case means transformed revenue collection because the FGN is unlikely to cut personnel costs, which dominate recurrent non-debt spending.

A first step would be to acknowledge the challenge. The outgoing federal finance minister said in February that the Moody’s downgrade of the sovereign rating from B3 to Caa1 came as a “surprise” and dismissed “external ratings agencies that don’t have the full understanding”. From our recollection, those same agencies visit the country as part of ratings reviews and meet with the finance ministry, central bank and other interested parties.

Gregory Kronsten is a consultant