The Debt Management Office recently indicated on its website that Nigeria’s total debt is currently about N7.93tn ($50.92bn). Domestic debt accounts for almost $44bn, while external debt just falls short of US$7bn. Thus, our consolidated national debt may currently exceed N13tn (i.e. about $80bn!), if the Asset Management Corporation of Nigeria’ s proxy debt of about N5.7tn is also captured!
Paradoxically, however, the current over twofold increase in national debt level, since the 2006 payment of $12bn for Paris Club debt exit is often mischievously favourably reported by our Economic Management Team as still well below the ceiling of 40 per cent debt to the GDP ratio stipulated in the Fiscal Responsibility Act 2007 by about five per cent.
Therefore, any discussion on the 2014-2016 Medium Term Expenditure Framework must recognise the oppressive burden of double-digit interest rate on these huge debts, in spite of their risk-free sovereign nature. The subtle official propaganda to encourage a massive shift in favour of much cheaper external debt should also be recognised as an attempt to, once again, mortgage the interest of future generations to modern-day neocolonialists. A more patriotic and progressive strategy would have been to adopt a constructive monetary strategy that would bring down domestic cost of borrowing to the benign level of external loans.
Expectedly, a responsible government should keep a lid on, and prevent even a one-kobo increase above the current oppressive debt level, while the expenditure plan must also accommodate a much more realistic framework for benignly managing the current debt burden. Regrettably, the recent feeble consolidation of a N100bn annual sinking fund for debt repayment certainly does not provide any realistic assurance of capacity to service and repay our debts of about N13tn when due.
A realistic and progressive fiscal strategy that recognises the undue heavy burden of the current debt level must, therefore, necessarily be predicated on the platform of balanced annual budgets within the lifespan of government’s MTEF, which must also be squarely founded on realistic revenue projections, to avoid the need to increase the already obnoxious debt level. In short, there must be no provision for deficit financing.
Furthermore, in view of the significance of crude oil to our revenue profile, crude oil price and output benchmarks must be realistically projected. For example, price should not be set below $80, as in recent years, when in actual fact, prices constantly remained above 25 per cent of the benchmark at $100/barrel, while cumulatively, output may have fallen only about 10 per cent average of projections. Inexplicably, however, in spite of the expected attendant revenue surpluses, which actually funded the Executive’s contrived Excess Crude Account, the Federal Government still resorted to borrowing over 10 per cent of its annual budget of almost N5tn at oppressive rates, just to fund what some critics have described as ghost deficits!
In addition, a plausible MTEF must totally eliminate fuel subsidy as a component of expenditure, and must indeed, also consider a realistic arrangement to actually earn a minimum 10 per cent sales tax/litre of fuel sold in Nigeria, as is the case in other successful oil resource-endowed nations like the United Kingdom and the United States.
It would equally be inapplicable to expect positive outcome from an MTEF that does not recognise the catalytic functions of monetary variables, particularly, inflation and interest rates. Indeed, except in recent months, the annual year-on-year inflation rate has consistently hovered around 10 per cent. Thus, for example, if the 2014 national expenditure budget is N5tn, you will need to spend 30 per cent more for the same goods and services in 2016 because of inflation.
Consequently, a responsible and sustainably progressive MTEF must be underpinned by a benign inflation rate below three per cent, as in successful economies everywhere.
Similarly, in order to ensure reasonable cost of funds to support real sector growth, we must adopt the best practices of such successful economies, and therefore insist that the Central Bank of Nigeria’s Monetary Policy Rate (which governs commercial lending rates) does not also exceed two per cent of LIBOR (the international benchmark for cost of funds). Thus, it must be a poor attempt by our economic managers to camouflage their failed strategies, when they assure Nigerians that our economy will soon rebound, when government eternally continues to borrow back its own deposits at double-digit interest rates while the cost of funds to the real sector is over 25 per cent.
The other critical factor for consideration in a viable MTEF is the applicable exchange rate benchmark. For example, since 80 per cent of current revenue comes from crude oil dollar revenue, the naira amount available for spending, therefore, will significantly be influenced by the applicable dollar exchange rate since the dollars are inappropriately substituted with naira allocations by the CBN. However, it will be self-defeatist to attempt to increase revenue by continuous reduction of the naira exchange rate, as this will only instigate and sustain an oppressive inflationary spiral.
Furthermore, apart from its adverse inflationary impact, if, for example, the naira depreciates from N160 to N320=$1, fuel subsidy payments will correspondingly double, to over N4tn annually, with grievous impact on revenue provisions for social and infrastructural needs.
Evidently, therefore, the first object of a socially responsible exchange rate policy in the 2014/16 monetary strategy would be to ensure that the naira exchanges at a rate that would immediately eliminate any form of fuel subsidy. Thus, if, for example, the dollar conversely exchanges for N80=$1, the price of petrol will immediately fall to below N70/litre, from the erstwhile unregulated market price of about N140/litre price without subsidy.
In addition, a stronger naira will significantly increase the purchasing power of the paltry incomes of all labour. Such increased purchasing power will in turn stimulate demand and drive productive industrial growth with increasing job opportunities.
In conclusion, in the light of our impoverished infrastructure base, a realistic and sustainable MTEF must progressively skew capital expenditure from the current level of about 30 per cent to over 50 per cent of total expenditure! Thus, any indication that the current MTEF accommodates more than 50 per cent of budgeted revenue as recurrent expenditure must be seen as a clear signal that a certificate of failure ultimately awaits us as a result of the failed fiscal strategy underscoring the MTEF!
Besides, it is no mark of responsible fiscal strategy, if the fundamental assumptions underlying the 2014/16 expenditure plan have yet to be resolved between the Executive and Legislature by November ending 2013, as ultimate Presidential assent may not be realistically expected until the beginning of the second quarter of 2014 with disastrous implications for successful budget implementation!
Alas, it seems we love repeating the same failed budget processes annually, and expect different results.