Adeosun says Jonathan pushed govs to deplete savings
• Minister blames economic crisis on empty treasury, debts, oil crisis
• ‘Bailout saved economy, govt monitors expenditure with debit cards’
An empty treasury worsened by the falling global oil prices are the primary triggers of the economic crisis the administration of President Muhammadu Buhari is contending with. And because the Goodluck Jonathan administration failed to save during oil boom, the Buhari government finds it difficult to guard against the impact of falling oil prices in the global market.
Consequently, to prudently manage available resources, the Buhari administration is to reduce the high rate of cash transactions in government business through the deployment of ‘Ministerial Debit Cards’. This will not only reduce stealing by government officials, it will enable easy tracing of e-expenditures.
These were the positions articulated by the Minister of Finance, Kemi Adeosun, in a television interview yesterday.
On relationship with the states vis-a-vis federal allocations, Adeosun said that it was not entirely true that states didn’t want to save during oil boom, rather, they were uncomfortable with the Federal Government’s handling of the savings, which led to sharing of oil proceeds.
She expressed regret that while most developed and developing economies have reinvested close to 60 per cent of their income in capital expenditure, Nigeria has typically spent only 10 per cent.
“We inherited, unfortunately, the worst of worlds. We (last administration) have been through a period when oil price was the highest, but unfortunately, we didn’t invest, yet the Federal Government was borrowing to pay salaries in the last few years. So, we inherited a fairly empty treasury.
“It sounds controversial but that is the truth. We inherited an empty treasury, yet oil price has declined. So, we didn’t have opportunity for recovery as oil price went from $110 to $28 per barrel. That is the situation we inherited. We were borrowing to service our debts, which the Federal Government (under Goodluck Jonathan) owed contractors. So, we came in at the toughest of possible times,” Adeosun said.
She added that the current administration was, however, taking steps to insulate the economy and reset it to ensure that “we never enter that position again.”
“We need to have more diversified economy and revenue base. If you look at oil, it is only 13 per cent of our Gross Domestic Product (GDP), but it represents 70 per cent of government’s revenue. So, if anything happens to oil, it affects everybody. The other question we are trying to resolve is why is the other 87 per cent of GDP contributing so little to government’s revenue?” he said.
According to Adeosun, another move is to ensure that government’s spending is effective, noting that spending only 10 per cent of revenue on capital expenditure would not grow the economy.
“We already have a 30 per cent commitment to capital and we have said that we want to sustain that commitment. South Africa that is seen as the wonder-child of the African continent was doing 60 per cent when they were trying to grow the economy. We were doing 10 per cent. That is the root cause of the situation we found ourselves in today. We are now trying to maintain 30 per cent minimum as our target. What that means are: power, roads, rail, and housing are things that create jobs and grow the economy.”
“What the current crisis has done is that everyone is now extremely sober. We are working very hard with the states now. We have said to them that first, ‘you will have a fiscal restructuring plan. Whatever we do is conditional. You must go and drive efficiency. For instance, do biometric capture of your staff, know who you are paying’. We have done it at the federal level and we have seen the amount of savings that can be generated. That was our agreement last week, and all the governors are subscribing to it.”
To Adeosun, the bailouts, though widely criticised, are two important interventions to save the economy from total collapse.
“Outside of places like Lagos, Rivers, Ogun and Oyo, if the state governments do not pay salaries, nothing happens in those states. The state government is the biggest employer of labour. Over two million people are employed by states and local governments. Once states don’t pay, economic activities stop. Once people don’t get salaries, they don’t pay their landlords and landlords don’t pay school fees and the multiplier effect is considerable. We cannot stimulate this economy if states that are the employers of about two million people across the country, cannot pay salaries. It won’t work. More so, it is not a bailout, but a restructured loan and that is what we have done.”
According to her, growth forecasts have been cut globally, meaning there is economic hardship in many countries, not just in Africa, but around the world.
According to the minister, oil-producing countries have particularly been negatively affected.
For Adeosun, however, Nigeria has strong fundamentals, even as “we are diversifying across many sectors of the economy not just on oil going forward. We are borrowing specifically to target investment, resetting the economy to unlock the potential of the country’s diverse non-oil sectors thus creating jobs and wealth.
“According to the International Finance Corporation (IFC), for every one billion dollars invested in infrastructure in developing economies, between 49,000 and 110,000 jobs are created,” the minister said.
According to Adeosun, there is a competent team looking into appropriate solutions to address the foreign exchange liquidity issue and they will present their recommendations to Buhari and the economic team. “Let’s not pre-empt the outcomes,” she said.
The minister also assured Nigerians of expansionary fiscal budget in medium term, which will include increased capital spending, fiscal housekeeping, audit and rationalised personnel-related expenditure. She said that government would reduce overheads and increase expenditure efficiency as well as consolidate extra-budgetary revenues and expenditure.