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Next government… and the turbulent economic takeoff

By Geoff Iyatse, Adeyemi Adepetun, Helen Oji (Lagos), Kingsly Jeremiah and Joseph Chibueze (Abuja)
03 March 2023   |   4:18 am
The President-elect, Asiwaju Bola Tinubu, could face the worst turbulent takeoff since the return to democracy in 1999 with huge debt, falling revenue and unsustainable debt servicing policy of outgoing government.


The President-elect, Asiwaju Bola Tinubu, could face the worst turbulent takeoff since the return to democracy in 1999 with huge debt, falling revenue and unsustainable debt servicing policy of outgoing government.

As at September, the country’s national debt had risen to N44.06 trillion, over 260 per cent above the N12.1 trillion inherited by the President Buhariadministration. Close to 61 per cent of the debt (N26.9 trillion) is held by the domestic market, while N17.15 trillion (or N39 per cent) is external.

Out of the N26.9 trillion domestic public debts managed by the Debt Management Office (DMO), about 20 per cent, that is N5.36 trillion, is held by the sub-national entities while the February Government owes the remaining 80 per cent. Still, the Federal Government owes the bulk of the external debt, totaling N17.15 trillion, even as the portion the states are liable for is fully guaranteed by the central government.

Besides the debt under the DMO management, the Federal Government is currently indebted to the Central Bank of Nigeria (CBN) to the tune of N22.7 trillion through the ways and means (W&M) window. President Muhammadu Buhari had written the National Assembly to approve his plan to restructure the amount into a 40-year bond.

The plan, which is yet to secure legislative approval, would drastically reduce the cost of servicing the debt by an estimated N1.8 trillion.

The Guardian had reported that with the current monetary policy rate (MPR), it would cost government about N4.65 trillion to service the debt held by the CBN, except if the securitisation plan passes the parliamentary hurdle.

Buhari had disclosed that the Federal Government agreed to pay prevailing MPR plus three per cent as interest on the accumulated overdraft. The estimated cost is close to 300 per cent above the N1.2 trillion budget for the purpose in the 2023 budget.

Before proceeding on election recess recently, the House of Representatives, which had queried the utilisation of the previous indebtedness, approved a plan for a fresh N1 trillion overdraft from the apex bank.

Apart from the conventional debts, the government’s ‘contingent liabilities’ to different institutions and projects stood at N4.6 trillion at the close of 2021. The figure was projected to reach N4.98 trillion at the end of last year and jump by as much as 50 per cent to N7.52 trillion this year.

Items and organisations on the contingent liability list are Nigeria Mortgage Refinance Company Plc, Nigeria Ports Authority – Lekki Deep Seaport, pension arrears, the NNPC – AKK Gas Pipeline Project among others.

The list of liabilities Buhari is expected to hand over seems endless. The Minister of Works and Housing, Babatunde Fashola, had disclosed that the government owed road contractors alone over N11 trillion – comprising N10.4 trillion commitment to highway contractors to the time of N765 billion unpaid certificates for executed works.

Besides, there are pending financial liabilities to non-lending bi-lateral and multilateral institutions, disputed and withheld salaries of members of the Academic Staff Union of Universities (ASUU) and sundry unfulfilled commitments to members of the Nigerian Union of Teachers (NUT) among others – obligations Prof. Godwin Owoh, an economist, said are as bad as debt.

If the level of indebtedness is tolerable to the incoming administration, the impact on the finances of the government may not be. Last year, Nigeria’s debt service-to-revenue ratio was 80.6 per cent – a figure far above World Bank’s recommended 22.5 per cent for low-income countries.

The World Bank has warned that Nigeria’s debt service cost-to-revenue ratio could hit 160 per cent in 2027, except broad-based reforms are implemented across different areas of the economy to ‘unfreeze’ the fiscal space.

Much of the 2023 budget will be implemented by the incoming administration, which, perhaps, explains its theme, ‘‘Budget of Fiscal Sustainability and Transition’. Sadly, the title stops at its phrase. The original outlandish N21.51 trillion spending cap contained in the executive bill was yet increased by another N1.32 trillion by lawmakers. The 6.1 per cent markup is not only statistically significant but also makes a substantial difference when weighed against the tottering fiscal position.

The original budget bore a badge of frivolity, dishonesty and outright self-denial, suggesting that the theme was either crafted as a form of satire or an error of commission.

The original bill contemplated a deficit of N10.78 trillion, which is well above the threshold of three per cent of gross domestic product (GDP) stipulated by the Fiscal Responsibility Act (2007), while the official justification itself mimicked what many described as uncreative thinking around the culture of deficit financing.

“As envisaged by the law, we need to exceed this threshold considering the need to continue to tackle the existential security challenges facing the country.
“We plan to finance the deficit mainly by new borrowings totalling N8.8 trillion, N206.18 billion naira from privatisation proceeds and N1.77 trillion drawdowns on bilateral/multilateral loans secured for specific development projects/programmes.

“Over time, we have resorted to borrowing to finance our fiscal gaps. We have been using loans to finance critical development projects and programmes aimed at further improving our economic environment and enhancing the delivery of public services to our people,” Buhari had told the National Assembly during the budget presentation.

The spending items the government would go loan-shopping to fund are not less ludicrous than the case made for the borrowing spree. Non-debt and debt expenditure take as much as 67 per cent of the spending outlay, leaving about one-third for phantom capital projects and other corruption conduits.

Unfortunately, revenue lags behind the astronomically high cost of public service, while the days of easy money are going away. From January to November 2022, The Federal Government earned a total of N586.71 billion from the sale of crude. The earnings were 64.3 per cent short of the prorata target for the period – a telling reflection of the weakening performance of the hydrocarbon sector, which has buckled under the heavy burden of crude theft and rising divestment.

Oil worker

Whereas the annualised retained revenue from oil last year would be N640 billion, the Federal Government still hopes it could rake in N2.29 trillion from the sector this year, close to four times of 2022 performance, to fund the outlandish budget it is passing to the next administration. The optimism, perhaps, presupposes that it will reasonably reduce oil theft or that fresh investments have poured in to scale up output in the next few months, which may be far from the truth.

Chocking debt market
THE trouble with the 2023 budget (and its legacies) is deeper than its many imbalances and desperate actions government has taken to make up. With the deficit of the signed version now standing at N11.34 trillion or 5.03 per cent of the GDP, government intends to increase the existing debt burden to N8.8 trillion. The proposed fresh loan is split in the ratio of N1.76 trillion (foreign) and N7.04 trillion (local).

The foreign portion is understandably small, yet there could be a problem sourcing it. Considering the restrictive monetary environment, the international debt market is extremely slippery with Ghana’s default only serving as one more blight on the prospect of African countries exploring facilities from the foreign market. There is also the issue of unaffordable funding costs.

The challenge is even worsened by the recent further downgrade of Nigeria’s rating by Moody’s Investors Service. With the downgrade, the global credit ratings agency expects the government’s fiscal and debt position to worsen amidst the far-reaching fiscal strain. The agency, in January, rated the country a level lower at Caa1, pulling Nigeria below its previous worrisome B3 rating. It had, in October, downgraded the country’s local currency and foreign currency long-term issuer ratings and its foreign currency senior unsecured debt ratings from B3 to B3.

In November, Fitch Ratings also downgraded Nigeria’s Long-Term Foreign-Currency Issuer Default Rating (IDR) to ‘B-’ from ‘B’. Essentially, the nosediving confidence by the rating agency expressed through their rating translates to a higher cost of borrowing from the international market.

The poor rating, nonetheless, is just a leg of the multiple challenges in accessing the international debt market: With Central Bank pushing interest rates to the highest level in recent years, cheap money is not available. And investors have responded accordingly, pulling out funds from the risky environment to take a position in dollar-denominated assets. Any hope of an early pivot by the Federal Reserve System, which has raised interest to 4.5 to 4.75 per cent, has been deflated by the fresh concerns about inflation in recent weeks.

Sadly, the local scene is not any better. With the ratio of public sector credit to total net domestic credit increasing by 8.3 percentage points year-on-year (y-o-y), as at last November to 35.3 per cent, there are fears that the private investment crowding out effect is not a textbook matter anymore. And the implication is telling on business growth and rising unemployment, which stood at 33.3 per cent as at 2020. To think that the Federal Government alone could potentially turn on the local market to raise as much as N7 trillion to fund its budget is frightening.

If it chooses to do so, the debt will not come cheap anyway. The monetary policy rate (MPR) is now 17.5 per cent. The negotiated interest on the outstanding N22.7 trillion CBN’s overdraft – MPR plus 300 basis points (bps) is a clue of the high cost of servicing local debts.

The burden of PMS subsidy… N20 trillion in eight years
BUHARI rose to power partly on his populist view on the controversial premium motor spirit (PMS) subsidy, only to realise the real depth of the challenge as soon as he assumed office. The scheme was changed to under-recovery but that did not reduce the scope of the challenge with the yearly budget running into multiple trillions of naira.

President Muhammadu Buhari.

Ahead of the general elections, all the major presidential candidates admitted subsidy was not sustainable and that they did not plan to keep it. Hence, there are indications that the pump price of PMS will skyrocket to N800 per litre if government has the courage to remove the ‘social safety net’ from the second half of the year.

For political reasons, especially to keep the current government in power, the decision to stop the payment of subsidies has remained elusive and the rise of the cost of the scheme is now the leading cause of public finance adversity.

To put it in perspective, in Nigeria’s 2022 budget, capital expenditure stands at N5.4 trillion while subsidy payment stands at N4 trillion. That’s about 74 per cent of the capital budget. This year, half-year subsidy stands at $3.2 trillion.

By implication, Nigeria may be spending more on subsidies than on capital projects. Sadly, no government has paid more on subsidy than under President Muhammadu Buhari.

From 2015, when this government came to power, until 2019, Nigeria spent over N10 trillion on subsidy payments. The cost for 2021 to 2022 was about N7 trillion with an additional $3.2 trillion budgeted for January to June this year. This brings the payment to about N20 trillion in about eight years.

While the government budgeted about $3.2 trillion for fuel subsidies from January to June, Tinubu had said his government would scrap the expenditure line.

Past President, the Chartered Institute of Bankers of Nigeria and Professor of Economics, Babcock University, Segun Ajibola, said while the actual pump may not be certain, the rate would be above the current price. But he noted that subsidy removal alone is not far-reaching but that other complementary actions must accompany the removal.

Ajibola said: “The monopoly of NNPC in fuel importation must be broken. You cannot be a regulator and at the same time enjoy a monopolistic status in fuel importation. Let the relevant agencies set and enforce standards while allowing those with the wherewithal to also engage in fuel importation.”

According to him, there’s a need to complete the turnaround maintenance of the local refineries, while the new government must continue to encourage private investments (local and foreign) in oil refineries here in Nigeria.

“I do not know what may be the take off price per litre when the subsidy is eventually removed. But it is going to be above the current price. If however the three-point agenda above are pursued together, the subsidy removal is going to produce a win-win result for Nigeria and Nigerians in the long run,” the professor said.

Chairman of the University of Cape Coast’s Institute of Oil and Gas, Wunmi Iledare, noted that the power of the Minister to fix PMS does not exist in the PIA, adding that NNPCL as a liability company can opt to run its downstream business at a loss if it so desires and approved by its Board of Directors.

“However, that will be contrary to the objective of its creation,” he said.

Iledare said full deregulation comes with a shock effect on the PMS market dynamics but would be for a short adjustment process. According to him, other neighbouring countries have been surviving the new PMS market dynamics as such Nigeria would survive too.

He said: “The question is really about efficiency and effectiveness, which simply means doing things right. It’s about governing a nation according to the rules of law and not based on an ad hoc political expediency mantra. Petroleum subsidy limits the ability of the petroleum value chain at adding value to the economy. It is not sustainable.”

Demanding an enabling environment to make the sector drive the nation’s sick economy, former Chairman of the Major Oil Marketers Association of Nigeria, Tunji Oyebanji, had pointed out: “We need to put behind us the need to control price. What we need is an agency to come down heavily on anyone who abuses regulations and imposes significant fines as it is done in other sectors like telecommunication. That would address the concern that some people may have expressed.”

Security, unity as low-hanging fruits
THE challenges, notwithstanding, some Nigerians believe that addressing insecurity and issues threatening the unity of the country are next government’s best shots at success in the economy and other areas. Those respondents who spoke with The Guardian in separate telephone interviews said without security it would be difficult to attract investors to the Nigerian economy.

National President of the Association of Senior Civil Servants of Nigeria (ASCSN), Tommy Okon, said the very first thing the incoming government should focus on is tackling insecurity so that people can go about their businesses freely.

He said it is only in a secure environment that investors can invest in the country and farmers will be able to go to their farms to produce food for the nation and export.

“The other area I want the new government to focus on is the welfare of workers, especially the civil servants whose pay has remained static while inflation has kept rising,” Okon said.

“He should reinstate the payment of gratuity to retirees because it is sad to have someone serve his fatherland for over 30 years or more only to retire and be left at the mercy of the pensions commission. There should be an amendment to the contributory pensions Act to accommodate the issue of gratuity.”

[FILES] Bandits. Photo: BBC

On the issue of fuel subsidy, the labour leader said the President-elect should remove the fuel subsidy because as a union, ASCSN doesn’t even believe there is subsidy. “It is a scam in which the government pretends to be helping the masses, but in the real sense it is for a few,” he said.

Also speaking, the National President of the All Farmers Association of Nigeria (AFAN), Kabir Ibrahim said the first two things the new government should do is to unite the nation and appoint competent hands even across party lines, especially in the area of Agriculture.

“That is the only way this country can move forward. He has said he will restore hope, we are going to hold him to that,” Ibrahim said.

On its part, the National President of Yam Producers Association of Nigeria, Professor Simon Irtwange, said the new government should focus on funding commodity associations just like the Anchor Borrowers programme but in a better-refined way to give better results than what the country had with the Anchor Borrowers’ Programme (ABP).

“We also want them to increase the number of commodities,” Irtwange said, noting that what happened under Buhari is a situation where the CBN just on their own selected the crops that they wanted without consulting the Ministry of Agriculture

“We expect better synergy between the CBN and the Ministry in terms of commodities that such an intervention can cover.”

Also reacting, the President of the National Palm Produce Association, Alphonsus Inyang, said the incoming President should focus on making the nation secure from bandits so that farmers can go back to their farms. He also said the government should focus on developing commodities that Nigeria has a comparative advantage on.

“The new government should articulate the policy towards the development of key commodities that Nigeria has a comparative advantage to promote, he should focus on the tree crops which are perennial crops that we call trees of life, trees like oil palm, cocoa, cashew, coconut, cola nuts and so on, and make them national commodities.

“If all the money that was put into developing rice was put into developing these tree crops, by now we would have moved forward,” he said.

On his part, Professor Godwin Oyedokun, a university lecturer, believes in the capacity of Tinubu to deliver on the economy.

“He can manage the economy and he also has a way of selecting the right team. I am sure because of the way the election went, he will do everything within his power to do well, at least, to prove to those who worked for his election that they made the right choice,” he stated.

Capital market as barometer of success in economy
EXCEPT for public debt issuance, which ballooned between 2015 and 2022, causing the debt market capitalisation to increase from N5.4 trillion in 2015 to N28 trillion in 2022, equities capital formation which stood at N1.362 trillion annualised in May 2015, had fallen to below N100 billion yearly.

The task before the new administration, experts have observed, is to reverse this trend and make the primary market a vehicle for corporate finance, as the private sector remains the engine for growth of the economy.

Over the years, operators of the capital market have lamented liquidity threat, which has been a challenge since 2015, saying IT is a major undoing factor. They stressed the need for the coming administration to expedite actions and prioritise the listing of privatised companies and other multinationals.

The stakeholders warned that with the current imbalance that exists in the equities market, price depreciation in one of the dominating stocks could trigger a bear run.

Besides liquidity constraints, the experts said that the current undiluted market structure where price movement is dependent on the performance of fewer stocks would continue to depress the all-share index (ASI); hence, an urgent intervention is required.

There is already a call on the government to tackle regulatory issues, insecurity and other macroeconomic concerns hampering business growth to ensure that other listed firms attract optimal patronage from investors.

Between 2015 and 2022, while all macroeconomic indicators deteriorated, the capital market defied economic fundamentals, growing by about 62 per cent in the equities secondary market.

For instance, Vice President of Highcap Securities, David Adonri, said for the Nigerian capital market to function as a catalyst of economic transformation the new administration must engage with stakeholders to revive the primary market for corporate finance, stimulate capital formation to develop the country’s heavy industrial sector as well as boost infrastructure.

He said: “If investors’ confidence is restored in Nigeria, being the primary sentiment that underpins capital market performance, improving macroeconomic conditions can impact the market positivity.”

Also, to revive the primary market segment of the Nigerian Exchange Limited (NGX) after eight years of inactivity, the Head of Equity, Planet Capital Limited, Dr. Paul Uzum, underscored the need for the incoming government to create policies that would boost business operations and encourage private sector involvement in infrastructure development.

According to him, tackling all hindrances to investment and providing an enabling environment that would be beneficial to all businesses and the private sector should achieve this. “We expect to see policies like the removal of fuel subsidies, the convergence of the Foreign Exchange markets to a single flexible exchange rate regime that is market-driven, fiscal discipline, and reduction of the perpetual and annual budget deficits, reduction in excessive borrowing, prudent debt management measures.”

Uzum said these initiatives would trigger a higher rate of real GDP growth of five to six per cent for Nigeria, reduce inflation to manageable levels, and tackle unemployment.

He pointed out that with favourable economic climate, private business firms would record meaningful improvement and qualify to list their businesses or solicit long-term debt finance from the capital market.

He said this would also encourage long-term investment in Nigeria in the form of Foreign Direct Investment (FDI) and portfolio investment.

Also, Chief Executive Officer of Wyoming Capital and Partners, Tajudeen Olayinka, said what the market looks forward to is an improved flow of private capital (local and foreign) in an appropriate mix, that will encourage more listing of public companies and their securities on organised securities exchanges in Nigeria.
According to him, this strategy would help attract new listings and boost the market’s contribution to the economy.

He pointed out that this would help drive much needed capital formation, job creation, productivity, and economic growth.

“And given that the president-elect already promised to ensure double digits growth in GDP, it follows therefore that he would need to put the economy on an adjustment program, mobilise private capital and deepen Nigeria’s capital market, to deliver on this particular campaign promise.

For the National Coordinator of the Independent Shareholders Association of Nigeria (ISAN), Moses Igbrude, the incoming government must not take capital market issues with levity, rather, they should implement policies that would enhance ease of doing business to attract new listings to the market.

He also stated that there is a need to implement efficient tax administration by eliminating multiple and illegal taxes, port congestion, as well as tackling rising insecurity in the country.

Need for improved broadband development for inclusive growth
THE Association of Telecommunications Companies of Nigeria (ATCON) has tasked the next government to work towards improving the performance of the sector in terms of its contributions to employment, capital importation and increased ICT consumption.

The Executive Secretary, ATCON, Ajibola Olude, said this can be achieved through adherence to N145 per liner meter as agreed by the Nigeria Governors Forum, stressing that there should be a stoppage of multiple taxation and other challenges that have hindered the sector’s growth and development.

Indeed, data from the National Bureau of Statistics (NBS) revealed that activities from the ICT sector contributed 16.22 per cent to Nigeria’s real Gross Domestic Product (GDP) in Q4, 2022.

According to NBS, the ICT sector is composed of four sub-sectors including telecommunications and information services, publishing, motion picture, sound recording and music production and broadcasting.

To NBS, for 2022, ICT total contribution to the country’s GDP was 16.51 per cent as against the 15.51 per cent of 2021.

Further analysis showed that ICT sector’s real growth rate of 10.35 per cent, this was boosted by the activities in the telecommunications sub-sector, which added 13.35 per cent to the GDP in the real term.

Olude added that the government should make sure that connectivity is given a top priority in the deployment of telecommunications services. According to him, it means all state governments should be encouraged to support the implementation of initiatives geared towards meeting the new broadband set target.

He revealed that the proposed NITDA bill and some of its functions, which are seen overlapping on NCC should be addressed swiftly, stressing that NCC should be allowed to continue to play its role within Nigerian ICT sector and NITDA should concern itself with its traditional set objectives.

“Government should allow the private sector to take ownership of the sector via constructive engagements with them. The time of taking decisions without consulting the Association that initiated the privatisation of the sector should stop,” he stated.

From his perspective, Science, Technology and Innovation (STI) Policy Advisor, and Founder of Jidaw System, Jide Awe, said the new government should prioritise digital development and transformation, focusing on promoting innovation and leveraging digital technologies to drive economic growth, improve the quality of life for citizens, and create job and growth opportunities for Nigerians.

Awe said by improving the overall impact of ICT on the nation’s development, “we can use digital technologies to realise Nigeria’s huge potential.”

According to him, inclusion is critical for people-oriented digital transformation where everyone can participate and contribute to the digital economy. “Unfortunately, large segments of society are still excluded from digital development. Without deliberate inclusion, ICT will only widen existing divides and create a nation of “digital haves” and “digital have-nots.”

“To advance inclusion, we should improve access to digital technologies like smartphones, computers, and the Internet. Creative initiatives and partnerships should be explored, and we should continue expanding digital infrastructure by expanding internet access to rural and underserved areas, promoting the establishment of data centers, and investing in cloud computing. The Nigerian National Broadband Plan 2020-2025 and the National Policy on 5G Networks for Nigeria’s Digital Economy should be implemented to deepen broadband penetration and improve telecom infrastructure. The government should also address policy and regulatory challenges that hinder telecom infrastructure development, such as multiple taxation, right of way, and bureaucratic bottlenecks.”

FURTHER, he said to sustain the economy and promote diversification, there is a need to have a relevant and up-to-date digital education strategy.

Awe said the new government should prioritize promoting digital literacy for all citizens and developing human capital in ICT.

“Mass digital literacy covering basic computer skills, coding, soft skills, and cybersecurity should be encouraged and supported inside and outside the formal education system. Capacity building for specialist ICT and emerging technologies skills should be prioritized to nurture creativity, research, mentoring, funding, and entrepreneurship. The educational curriculum and structure should be revamped to reflect the changing digital realities of innovation, entrepreneurship, and new technologies.

“Entrepreneurship should be encouraged to create jobs, spur economic growth, and reduce youth unemployment. The government should ensure the practical implementation of the Nigeria Startup Act, provide tax incentives for entrepreneurs, fund incubators and accelerators, and simplify business establishment processes. Youth innovation should be promoted, as young people constitute the majority of the populace. The new government should invest significantly in encouraging the use and development of smart technologies, promoting industry and academia collaboration, and research and development to diversify the economy through the ICT sector.”