From Uche Usim, Abuja
The Nigerian economy is gasping for breath, and that is putting it mildly. While many uninformed citizens may not appreciate the consequences of its impending collapse, experts have raised the red flag that the nation is in the intensive care unit, having manifested all the signs of economic anaemia and haemorrhage.
With a N41.6 trillion debt overhang amid low productivity, a profligate civil service design, ballooning debt servicing, unbridled corruption, high unemployment rate, weakened private sector, decayed infrastructure and blooming insurgency, analysts say the challenges have reached a stage where pragmatic steps must be taken or the nation becomes another Venezuela that is oil-rich but economically grounded.
While oil prices are hitting record highs as the Russia-Ukraine war persists, Nigeria has not been able to enjoy the banquet because of low production, which in itself is a combination of unprecedented theft, reduced investments in the upstream and divestments by oil majors.
To properly contextualise the challenges, the acting accountant-general of the federation (AGF), Mr Chukwuyere Anamekwe, at a recent retreat organised for members of the Technical Sub-committee On Cash Management (TSCM), said the huge level of borrowing to buoy budget shortfall and payment of salaries and wages was economically traumatising. He added that it was glaring evidence that the country was facing a huge financial crisis.
He advised that concerted efforts must be made to reverse the trend through fiscal discipline, economic diversification, boosting export and plugging revenue leakages, among others.
He said: “We have to borrow to augment payment of salaries and wages. This shows we are in very difficult times. Government income is highly challenged.
“The theme and objective of the retreat couldn’t have been better captioned given the fiscal challenges at the moment. Records available indicate that, due to dwindling revenues, the Treasury had to resort to other sources in order to augment the payment of Federal Government public servants.
“There is an increase in government expenditure due to increasing security challenges and social needs of the citizenry.”
However, the development is not any better when a global analysis is done. For instance, in South American nations, external debt is mounting. Argentina has defaulted on debt repayment nine times and, to avoid a 10th default, it has gone to the International Monetary Fund (IMF) for reprieve as civil unrest ravages the country. It wants to refinance a $45 billion loan. This might give the country a brief reprieve but it will not quell the civil unrest. Analysts say Argentina is staring at a long and cold winter this year. It is the same story for other countries like Sri Lanka, El Salvador and Peru. They face hyperinflation on commodities, tumbling bonds, food shortages, detonating prices and mass unemployment. Reports say they face civil unrest. In sub-Saharan Africa, Ghana, Kenya, Ethiopia and South Africa could be the worst hit. In Ghana, debt levels are soaring, interest rates are choking the economy and debt crisis looks imminent. In Kenya, sovereign debt has climbed to $70 billion, 70 per cent of its GDP. It recently got $244 million from the IMF to weather the storm. In South Africa, the debt has reached 80 per cent of GDP, despite rising revenue. There is a looming threat of state collapse, a rerun of the 2021 civil unrest. In Turkey, the debt is soaring and the currency is sliding, 54 per cent of its GDP amid food shortages. It is getting 50,000 tonnes of wheat from India.
The myriad of challenges have forced nations to seek home-grown solutions to stay afloat.
But Nigeria, analysts reckon, battles a different kind of storm. With the 2023 elections around the corner, the attention of various levels of government has shifted from economic sustainability to politics.
This is aside from cemented profligacy, which characterises the federal and state civil service. They parade a top-heavy structure with many duplicated functions.
Experts says that the Federal Government can save over N241 billion annually if the 2011 Stephen Oronsaye report on public sector reforms is implemented.
The report stated that there were 541 Federal Government parastatals, commissions and agencies (statutory and non-statutory); 263 of the statutory agencies should be reduced to 161, 38 agencies should be abolished, while 52 agencies should be merged.
The report further recommended that 14 agencies should revert to departments in ministries.
Aside from institutional waste, kidnapping, banditry and other crimes are flourishing and dissuading citizens from carrying out large-scale agricultural production, which is one of the economic diversification planks of the incumbent administration.
Consequently, Nigerians are contending with worsening food insecurity and possible stagflation.
Farmers in agrarian communities have been sacked by insurgents and are now languishing in overcrowded internally displaced persons’ camps.
According to the World Bank, in the next 12 months, as many as a dozen developing economies may not be able to service their debts. It will be the largest debt crisis in a generation.
The entire world is in debt distress. National budgets are at breaking points, some governments are forced to cut spending, others like Nigeria are borrowing to stay afloat amid debt typhoons.
According to the World Bank president, David Malpass, the Russian invasion of Ukraine has magnified the slowdown in global economy, which is entering what could become a protracted period of feeble growth and elevated inflation. The development, he added, compounds an already existing damage from the COVID-19 pandemic.
The World Bank’s latest Global Economic Prospects report raises the risk of stagflation, with potentially harmful consequences for middle and low-income economies alike.
In sub-Saharan Africa, growth is forecast to moderate to 3.7 per cent in 2022 and rise to 3.8 per cent in 2023.
Among emerging market and developing economies, growth is also projected to fall from 6.6 per cent in 2021 to 3.4 per cent in 2022—well below the annual average of 4.8 per cent over 2011-2019
Global growth is expected to slump from 5.7 per cent in 2021 to 2.9 per cent in 2022— significantly lower than 4.1 per cent that was anticipated in January. It is expected to hover around that pace over 2023-2024, as the war in Ukraine disrupts activities, investments and trade in the near term, pent-up demand fades and fiscal and monetary policy accommodation is withdrawn. As a result of the damage from the pandemic and the war, the level of per capita income in developing economies this year will be nearly 5 per cent below its pre-pandemic trend.
Malpass said: “The war in Ukraine, lockdowns in China, supply-chain disruptions and the risk of stagflation are hammering growth. For many countries, recession will be hard to avoid.
“Markets look forward, so it is urgent to encourage production and avoid trade restrictions. Changes in fiscal, monetary, climate and debt policy are needed to counter capital misallocation and inequality.”
The June Global Economic Prospects report offers the first systematic assessment of how current global economic conditions compare with the stagflation of the 1970s—with a particular emphasis on how stagflation could affect emerging markets and developing economies. The recovery from the stagflation of the 1970s required steep increases in interest rates in major advanced economies, which played a prominent role in triggering a string of financial crises in emerging market and developing economies.
“Developing economies will have to balance the need to ensure fiscal sustainability with the need to mitigate the effects of today’s overlapping crises on their poorest citizens,” said Ayhan Kose, director of the World Bank’s Prospects Group. “Communicating monetary policy decisions clearly, leveraging credible monetary policy frameworks, and protecting central bank independence can effectively anchor inflation expectations and reduce the amount of policy tightening required to achieve the desired effects on inflation and activity.”
The World Bank advises policymakers to refrain from distortionary policies such as price controls, subsidies and export bans, which could worsen the recent increase in commodity prices. Against the challenging backdrop of higher inflation, weaker growth, tighter financial conditions and limited fiscal policy space, the bank said governments will need to reprioritize spending toward targeted relief for vulnerable populations.
President of Association of Bureau De Change Operators of Nigeria (ABCON), Alhaji (Dr.) Aminu Gwadabe, said, to keep the Nigerian economy going strong in the face of the multi-faceted challenges, local production and diversification of the economy away from oil are non-negotiable.
He added that the naira exchanges at N614/$1 at the parallel market, dollar bids continue to rise as inflation rose to11-month high (17.71 per cent) in May. These developments, the ABCON boss noted, were eroding the purchasing power of households.
“The biggest driver of inflation is the stubborn rise in food inflation. The average price level of the food basket rose by 1.13 per cent to 19.50 per cent in May from 18.37 per cent in April. This can be reversed by increased support for agriculture and government policies that support the sector,” he said.
Gwadabe said Nigeria’s huge population and diaspora market, which attracts an average of $20 billion annually, can be explored to deepen dollar inflows to the economy.
President of the Nigerian Association of Chambers of Commerce, Industry, Mines and Agriculture, Ide John Udeagbala, recently said that the economy was functioning below operative capacity, which found expression in the aforementioned challenges.
Udeagbala reckoned that Nigeria had experienced two recessions in the last seven years and warned that, if the right policies are not administered to catalyse growth, the country would be hit by a third recession in the fourth quarter of this year.
For the CEO, Centre for the Promotion of Private Enterprises, Dr. Muda Yusuf, the big issue to be tackled is not the abstract concept of recession but the impediments to productivity and welfare: “Players in the economy are more concerned about what can be done to moderate energy cost, stabilise the exchange rate and improve the security situation in the country. There are also human capital development issues, which require a lot more attention.
“The truth is that as the 2023 elections draw closer, governance distractions increase. There is much more attention now on politics than on governance.