By Odilim Enwegbara
FrisT, let me tell Mr. President right away that if he hopes to grow the economy out of recession in 2017, this budget is not the one to do it. This is because it is not only not expansionary, it is not pro-investment, pro-growth, and pro-jobs. As a result, it is not enough to be expected to perform such magic.
Like most recessions, if this recession is not a product of a sudden accident, why this rush in sending this economy to the emergency ward? That is why, like every recessionary economy, this economy too is in urgent need of serious restructuring along with some unconventional policy reforms. This is the only way we too should be able to permanently put ours on a healthy and sustainable growth path. Why the recovery is yet to begin is because President Buhari is yet to bring together those gifted Nigerian economic surgeons who have the pro-expansionary fiscal and monetary measures specialization needed in performing this inevitable economic diversification.
That is recognized from Nigeria’s budget to GDP ratio, which compared to its peer economies is the lowest. It is the lowest because our tax to GDP ratio has remained over the years the lowest among the peer economies. And our tax to GDP is so low because no serious measures have been made all these years to move away from oil as government’s major revenue source.
Take one of our peer economies, South Africa for example. In its June 2016 Budget which ends in May 2017 (since South Africa runs June-May fiscal year) South Africa budgeted $143.966bn (with fiscal deficit of 3.2%) against Nigeria’s $23.928bn (with fiscal deficit of 2.18%) in 2017. South African Revenue Services (SARS) collected R1.0699 trillion in taxes) $76.421 billion, representing 27.26% of $280.367 billion GDP. This is against Nigeria’s (N1.373trillion non-oil revenues) $4.502 billion representing 1.08% of $415.080 billion GDP. From this, South Africa’s budget is 53.08% with tax revenues, whereas Nigeria’s is funded with 18.81% tax revenues.
A look at the proposed 2017 budget’s N7.298tn against 2016’s N6.077tn seems higher in size. But then, taking N305 per dollar and over 20% expected inflation average into consideration against 2016’s N197 per dollar and 16% inflation average, it becomes certain that 2017 budget is smaller. It becomes far less expansionary than the 2016 Budget with N2.24tn capital budget at N305 per dollar is only $7.344bn against N1.8tn capital spending at 197 per dollar is $9.137bn.
In the meantime, a whopping sum of N1.66 trillion is spent on debt service, which is ironically over 95% domestic debt. What economic sense does it make that a country facing $350bn infrastructure deficit is okay with 11.73% debt to GDP ratio (Federal Government: domestic 9.02% and external portion at 2.71%), whereas its peer economies such as South Africa, with its low infrastructure deficits has as high as 44.0% debt to GDP ratio (domestic 4.70% and external 39.30%)? No doubt, that the 2017 budget’s N2.36tn deficit which has N1.067tn (46%) external borrowing is a welcome development. If government should not put embargo on domestic borrowing, at least, one would have expected the external borrowing in 2017 to be as high 70%. At least that would have reduced our presently unsustainable debt service which in 2017 alone is put at N1.66 trillion.
The question that arises is: why, not minding that external borrowing is cheaper and concessionary, government prefers domestic borrowing which is not only costly to service and short-term based but also crowds out real sector firms from the debt market? The only reason why this has been going on is because of the fact that top fiscal and monetary policy makers along with those in charge of DMO, have been conniving with their local bank counterparts to use bloated domestic borrowing to defraud the country of trillions of naira. That explains why Nigeria’s N10.606 trillion domestic debt stock cost N3.628 trillion between 2013 and 2016 to service, while our $11.261bn external debt, cost N214 billion to service during the same period.
Another question is why is it that government is reluctant to fully exploit all the tax possibilities (including VAT), which would have drastically increased its revenue stream? The only reason why top government officials along with our so-called economic policy experts and bankers are fiercely opposed to government increasing all non-oil revenues, particularly taxes, is because should government increase its revenues, that would amount to reducing its domestic borrowing to finance deficit as a result of shortfalls in government revenues. Limiting its domestic borrowing would mean putting banks and other domestic lenders out of their highly lucrative business of lending to government at cut throat interest rates.
That is why some people in government are not ready to allow anyone who could advise government to properly review its current borrowing policies to either get closer to the corridors of power or be allowed to be heard. It is equally the reason why these enemies of Nigeria are fiercely against the repayment of our domestic debt, including adopting quantitative easing (printing enough naira to buy back our domestic debts. Shouldn’t by using quantitative easing we could easily pay off our huge domestic debts, and by so doing, save trillions of naira, including the N1.66tn to be spent in 2017 budget on debt service; money which if channelled into infrastructure spending should reduce our infrastructure deficit?
If it is called domestic debt because when a government is overwhelmed with domestic debt service, the indebted government should print the same local currency it borrowed the money in to settle it, why is that when it comes to ours, government is reluctant to adopt the same measure, first adopted by President Abraham Lincoln in 1864, when he directed his treasury secretary, Mr Portland Chase to print $480 million greenback to repay the country’s domestic debt accumulated as a result of the 1861-1865 US Civil War?
Enwegbara, a development economist and chairman at PADCC, writes via
[email protected]