By Odilim Enwegbara
The false use of inflation alarm — insisting that government should not ever adopt quantitative easing — coming from the same local debt holders (mostly banks) and their top government counterparts (mostly CBN, finance ministry and DMO) should have reminded us that there is no way the same beneficiaries of the trillions we spent on domestic debt service will allow government to pay off the debt. There is no doubt that serious inflation is bad for an economy. But then, there are two types of inflation—healthy and unhealthy inflations. Healthy inflation is one caused by economic expansion and modernization as a result of diversification that warrants massive public spending.
Ours unfortunately is stagflation — stagnation and inflation taking place side-by-side. Stagflation is because we are over 95% import dependent, importing virtually all we consume. But, by increasing the cost of borrowing and not addressing infrastructure deficit, we are actually increasing inflation by not reducing key interest rate, and by government’s domestic borrowing that put pressure on the local debt market.
If we are sincere about reducing inflation, we should have been reducing the very high cost of doing business which prices local producers and manufacturers out of market by making their goods and services uncompetitive.
One other major flaw in the proposed 2017 Budget is that most government departments and agencies have been operating without boards of directors. With this, it is most unlikely that the National Assembly will entertain their respective budgetary spending. This is because the law clearly states that the budget estimates of all government departments and agencies should pass through their respective boards of directors, who should approve them before they get to the National Assembly for final scrutiny and approval.
Given that the boards of most of these departments and agencies disbanded in July 2015 by President Buhari are yet to be reconstituted, then, the question the respective committees of both the Senate and the House should be asking them when they come to defend their respective budgets is: which board directors approved their budget estimates before they were submitted to the National Assembly? The follow-up question also becomes: which board of directors will make sure that the appropriated funds in the 2017 budget are properly spent?
Another flaw in the proposed budget is that the price of oil is benchmarked at $42.50 per barrel. It is important to fully interrogate this because at a time of recession like this, all avenues to increase government revenues should be stretched as far as they can go. My insistence that benchmarking oil price at $42.50 per barrel should be increased to $50 per barrel is based on the fact that in 2017, oil price should be expected to rise as high as $65 per barrel. My reasons are obvious.
First, one reason Putin supported Trump in 2016 presidential election is for him to help reverse oil prices upward, possibly close to what it was in 2013 before the US-led west to punish Russia for invading Ukraine manipulated it down. And that Trump is signalling to do that is explained by appointing Mr. Rex Tillerson, the ExxonMobil CEO as his Secretary of State. Second, like Putin, Trump too would like to see oil prices upward for the simple reason that high oil price is needed if his government will be able to raise the trillions of dollars to be injected into improving America’s infrastructure. It is a welcome development because if huge American infrastructure spending happens, that would result in global economic growth.
On whether or not the finance minister is doing the right thing, my answer is that she is yet to show the kind of tax policy overhauls needed to aggressively increase government’s tax revenues to what it should be. Our tax-to-GDP ratio should have been getting close to 30%. But even the little VAT money collected, as high as 70% of the money is being diverted by both FIRS officials and the collecting businesses, mostly Chinese and India businesses operating in Nigeria that have continued to connive with the officials of the FIRS not to remit the VAT money collected.
By now, Mr. President you must have come to this painful discovery that there are two separate things—to be helped by a fellow politician to win an election and another to give the politician the position of helping you meet your campaign promises. In 1932, Mr. Big Joe, notorious New York Mafia gang leader, helped former New York governor, Mr Franklin D. Roosevelt to win the US presidential election. But did Roosevelt bring Mr Big to help him run the government? Never! In fact, Roosevelt did the contrary. To make sure that Mr Big Joe never stood in the way of his government including demanding ransom, Roosevelt wasted no time in putting Mr Big Joe behind bars. So that with that he could freely focus on the business of fixing America’s depressive economy.
What we’ve had so far is that, in an effort to show appreciation to those who helped him win the 2015 presidential election, our goodhearted President has handed some serious decision-making government offices to those who helped him become president. There is nothing wrong with rewarding those who stood by you at a time of difficulty. But let that not include handing knocked engine car to a non-mechanic. If that happens, both the person being rewarded and you trying to reward him will lose. This is because without the mechanic, any other person trying to fix the car will only be doing trial and error work. In the meantime, the passengers are stranded, including seriously sick passengers who joined the car hoping to get to the hospital.
Concluded
Enwegbara, a development economist and chairman at PADCC writes via [email protected]