In a series of articles in April 2016, at the start of Nigeria’s economic recession of 2016 / 17, the former finance minister Kemi Adeosun wrote in the papers, “the first thing to note is that there are no quick fixes, but our strategy is clear and the expected outcomes are pretty compelling. Our immediate economic imperative is to provide a Keynesian stimulus to reflate the economy. The 2016 focus is underpinned by a desire to radically reposition Nigeria’s economy.”
She went further, “The 2016 budget is being debt funded and the borrowings are targeted at the financing of capital projects to address the infrastructure deficit, create jobs and build the platforms for optimisation of the non-oil economy that will see Nigeria prosper. Our borrowing policy will remain conservative and will see us access the lowest available funds, hence our decision to approach multilateral agencies in the first instance, for budget support at concessional rates as low as 1.5% per annum.”
Just last week, following the Federal Executive Council (FEC) meeting, the current minister of Finance, Zainab Ahmed was quoted as saying, “We intend to fund the 2019 budget through borrowing locally and internationally with a spread of 50: 50. Our focus is on concessionary long term loans”. Swap “multilateral agencies” in Adeosun’s statement for “concessionary” in that of Ahmed and you have the same meaning and intent in relation to Nigeria’s fiscal policy by the government. But pursuing this policy again in 2019 will be tantamount to the repeat of the failure of 2016.
Please recall that the Federal budget of 2016 was actually passed into law by the national assembly on March 24 of the year. In that year, and subsequent ones, the pattern that emerged was that the budget was never ready in the first quarter of the year. Indeed, in the last four years, no one, including those in government, is sure what our fiscal year is anymore. This is a story for another day.
But the implication I want to draw your attention to is that Adesoun made those statements after the 2016 budgethave been prepared and passed. In other words, she had no clue where it will be funded, except for the intention, until the budget was passed. Meanwhile, as expected by every rational economist, the World Bank and the International Monetary Fund did not provide the concessionary loans because Nigeria did not provide a credible economic policy and programme. Consequently, the budget was not implemented as envisaged and planned, and the following year and since, the government has borrowed from the international debt markets at varying yields in excess of 7%.
Second, just as the 2016 budget was the first by Adeosun as finance minister, the 2019 budget is the first for Ahmed, appointed Minister in charge of that ministry, following Adeosun’s resignation in September 2018. I brought this up to provide context that Ahmad is about to repeat the same mistake made by Adeosun. Except Nigeria provides what the multilateral agencies consider credible economic policy programmes, it would not get a dime from them. The motivation for the government to seek cheap credit is simple. Oil prices are low, the economy is weak, and debt servicing is huge, but without a credible economic programme, they will not listen.
The statement also exposes the fiscal rigmarole that the government has provided in the last few years. The government continues to provide large budgetary envelopes without credible revenue plans and basis. In 2016, 2017 and 2018, the government budgeted 6 trillion, 7.3 trillion, and 9.1 trillion, respectively. In all these years, the revenues were always grossly overambitious and unattainable.
The motivation is to theoretically maintain that it had not borrowed beyond the 3% deficit as allowed in the Medium Term Expenditure Framework (MTEF). For instance, in the three years, its planned deficits were 2.2, 2.36, and 2 trillion respectively, but actual deficits and addition to debts were higher. Second reason the government provides over ambitious and unattainable revenue expectations is so that it can claim it is spending over 30% on infrastructure. But consecutively, it has not because the revenues have always been over simplistic and short.
From the foregoing, two things are clear. One is that the government saw the economic crisis of 2016 as an aggregate demand problem. This suggests that the government needed to spend and expand demand, and for the government to make capital expenditure on infrastructure, which it expects will drive growth and jobs. The other point is that the government continues to limit its fiscal policy to “revenue and spend”. It continues to limit its policies to how to raise revenue and how to spend the revenue. Shikena.
But the most potent aspect of fiscal policy available to the government are the policies it can embark on that will drive private sector investments and attract foreign ones across many sectors of the economy. But that is not happening. At this rate, by the end of 2023, this government will leave Nigeria will unsustainable debt, job crisis, and set us back another three decades. Contrary to what Adeosun thought, their strategy was not clear and the expected outcomes certainly not compelling. For the sake of all Nigerians, I do hope that it retraces its steps very quickly and do things differently, as the President suggested recently.
I thank you.
Ogho Okiti
