In the beginning of 2020, there was a lot of euphoria on the ousting of a decade (2010-2019) and the ushering of a new one (2020-2029). Expectations were up and new goals were set by individuals. On the macro scale, countries started developing the idea of medium-term economic planning. In Nigeria, the Economic Recovery and Growth Plan (ERGP), which was the economic rule book in the last four years, is expected to close. Consequently, Nigeria needs a new plan document to guide its economic affairs over the next decade.
Four months into 2020, there are mixed feelings everywhere as to the future this new decade holds for the global and Nigerian economy. These concerns revolve around global recession, fourth world war and global health security. In these four months, the global economy has witnessed an oil supply war, successful disintegration of Britain from the European Union, assassination of a key military official in Iran and the outbreak of the novel coronavirus. With all these combined, Nigeria is in a depth of external shocks and needs fiscal measures that can shield the economy from a relapse.
An antithesis policy trend has been glaring from 2019 till date and implies that the Nigerian government was not prepared for the challenges of this new decade. Some manifestation of these lack of preparedness include: policy mismatch – examples of this include a high CRR ratio of 27.5% coinciding with 65% loan-to-deposit ratio in commercial banks, increase in value added tax to 7.5% coinciding with increase in minimum wage to N30,000 and a N10.27 trillion budget, of which 67% goes to recurrent expenditure and debt servicing. In each instance, one policy action conflicts the other and the impact on the economy is ambiguous.
Other expressions of Nigeria’s laxity to the new decade include the failure to improve fiscal federalism, washed fiscal buffers (stabilization revenue fund and the excess crude account), porous tax nets and the poor state of social welfare packages for poor Nigerians.
Amidst these policy inefficiencies, the bigger question remains ‘what fiscal policy measures can enable Nigeria weather the storms of the new decade?’ On the revenue side, it is blatant that Nigeria needs to diversify its fiscal coffers. Oil is the old gold for Nigeria as its price, demand and supply are not in Nigeria’s favour all the time. With other natural resource endowment and great human capital potentials, Nigeria can make three to four times its current earnings if it explores these alternatives.
Along the revenue line as well, states must learn to rely less on FAAC allocations and must begin to look inwards to raise revenue. A pertinent precondition for this is for state Governors to create enabling policy environment and business incentives to attract foreign capital to their states. This would raise tax revenues and reduce dependence on FAAC allocations and federal government bailout.
By December 2019, the federal government was indebted to the tune of N21.8 trillion and states owed N5.6 trillion to domestic and external lenders. It is important to cut down on borrowings otherwise, future budget and Medium-Term Expenditure Framework in this decade will have very little tangible effect. Instead of borrowing, the government can lease out defunct public corporations for an annual rent
Furthermore, wasteful recurrent expenditure, which is now a habit, so glaring in Nigeria’s budget document should be discouraged. This is difficult to implement since the major culprit in this act are those who pass the budget eventually. However, a rule-based fiscal policy approach should be considered on major aspects of the fiscal policy bandwidth. For instance, recurrent spending can be capped at 35% – 45% of approved budget and capital expenditure capped at 30% – 40%. Periodic audit of budget performance is also germane to ensure budget allocation are utilized for the intended purposes.
With all these said, a crucial factor to watch out for is government’s commitment to policy implementation and success. This lies at the heart of saving the Nigerian economy in times like these.
Written by Ore Adeyemo
Edited by Michael Ogunremi
Ore is a Project and Structured Finance Analyst with Access Bank, Nigeria
This is a brilliant piece Ore. Let’s hope, as we have always done, that the government does the right thing especially at this time of dwindling oil revenue that has distorted our public finance.
That’s right Kelvin and thanks.
the Paradigm shift is now and it starts from the mind set and concerted efforts from policy makers as well as all outlets for execution.
three simple things i believe the government can get right in the short – medium term while other things fall into place are:
1. set up a rule based fiscal system; this will curtail rent-seeking behaviour a great deal
2. Consider debt denominated in Naira and apply same to country wide infrastructural Gaps;
3. actively encourage fiscal federalism across regions/states; this will reduce burden on federal government.
Nice article here.
Curious to know, how much in $ or naira terms will the new fiscal policy recommended changes save the country? In addition, in light of our eco-political landscape, how much of these changes can be visibly implemented and how much effort is needed to pull it through.
This is what happens when a sound colleague reads an economic article. Well, quantifying the cost savings of the recommendations is achievable, but beyond the goal of this article. A sheer guess will be to say that the savings will run into billions of naira. You are also quite right to point out the consideration for our eco-political landscape like you put it. Nigeria’s political economy is full of politicking, red-tapism, and less preference for people-oriented policies like the ones in the recommendation. so it means we can at best hope the recommendations are worthy of implementation. Of course, all of these require lots of effort. Thank you, Pantaleon