Buhari and the economy: Which way forward?
EXPECTEDLY, goodwill messages have deservedly, poured in from far and wide to congratulate the clear victor of the 2015 elections, and President-Elect Muhammadu Buhari may not be unduly disturbed that President Goodluck Jonathan’s inspirational and totally unexpected early acceptance of defeat, ironically, favourably raised the incumbent’s rating as a statesman beyond the pedestrian perception induced by his performance in governance.
Indeed, despite the complimentary economic growth rates, regularly, gleefully presented by Ngozi Okonjo Iweala, sadly, more Nigerians joined the already bloated poverty ranks.
The horrid level of insecurity, apparently instigated by ethnic and religious divide, may in fact find their true origin in the pervading level of unemployment and poverty nationwide.
Consequently, expectations are high that Buhari will provide an antidote to poverty, corruption and unemployment; clearly, Nigeria’s poverty cannot be blamed on an inhospitable climate or shortage of natural resources.
In fact, other nations with considerably less natural endowments may be excused for decrying what they consider to be inexplicable inequity by providence. Clearly, our inability to galvanize our resources for the greater good is actually caused by the application of fiscal and monetary strategies that are antagonistic to consumer demand, and job creation.
Conversely, nations like Singapore, with little or no resources succeeded in enhancing mass social welfare with well -thought out fiscal and monetary strategies that are people-focused.
Consequently, if Buhari must succeed, he must quickly reverse the ratio between capital and recurrent expenditure, such that well over 60 per cent of total annual revenue projections would be dedicated to the enhancement of social infrastructure and human capacity.
Thus, we must drastically reduce the prevailing huge salaries and allowances of public servants, particularly our legislators, who are reported to be amongst the highest paid in the world.
Certainly, Buhari would need to also reduce the duplication of functions by various Ministries, Departments and Agencies (MDAs) as per the recommendations in (Steve) Oronsanye’s report, but government must be careful to minimize the inflow of new entrants into a jobless market.
Similarly, the President-elect should be wary of increasing the current debt to GDP ratio, as this is a straight road to another unfolding oppressive debt burden.
A situation where a relatively stable nation like Nigeria, with its immense reserves and resources, borrows at Shylock rates of over 15 per cent is totally unacceptable for what are clearly risk-free sovereign debts. Furthermore, Buhari must immediately interrogate why our foreign reserves earn minimal interest, while we inexplicably go cap in hand to borrow externally at over seven per cent interest rate.
Incidentally, the 2015 budget proposals accommodate over 20 per cent deficit; government will therefore borrow over N1 trillion and pay between N100 and N150 billion as interest charges to fund part of its recurrent (consumables and salaries, etc.) budget; ironically, such huge government borrowings will exist simultaneously with the unyielding ‘obstructive’ Naira surplus deliberately created by the Central Bank of Nigeria (CBN).
Buhari’s Economic Team must, therefore, hit the ground running and readily jettison Jonathan’s 2015 budget proposal, so that a fresh Appropriation Bill can be presented to the National Assembly before July 2015. The All Progressives Party’s (APC) majority in parliament should facilitate this process.
We may also consider 29th May to May 28th as fiscal year to align with our established Election Time Table and thereby, prevent politically-induced budget truncation half-way into the year, on the advent of a new leadership after elections.
Furthermore, in view of the abysmal performance in the power sector, Buhari should take a closer look at how Nigerians were left with over N400 billion debt after the privatization of PHCN distribution network.
It is equally curious that almost two years thereafter, government continues to breastfeed the Discos with selective interest waivers, which have regrettably not guaranteed low tariffs or improved performance.
Thus, in view of cost implications, Buhari’s administration should advisedly fast-track the adoption of gas for generating power, as gas is considerably cheaper at below $3/cubit meter and remains a much cleaner form of energy. Besides, our gas reserves are multiple times in excess of crude oil reserves.
Gen. Buhari will equally need to shine his eyes in the area of monetary policy and strategy. As a first step, his administration should stop the looting of public funds with the obnoxious treasury bills scam.
An arrangement where banks are positioned to make over N600 billion in 2015 as interest on government loans which are not applied to any productive or socially-enhancing purpose is clearly obscene.
In successful economies, monetary authorities mop up or reduce any perceived burdensome surplus cash in the system by borrowing at minimal rates below two per cent.
When government borrows at 10 per cent and above for what are essentially risk-free sovereign debts, banks expectedly become reluctant to lend to other borrowers, thus crowding out the real sector from cheaper investible funds which could spur enterprise and industrial production and also create more jobs.
The President-Elect should not be hoodwinked by CBN’s usual propaganda that inflation, interest and exchange rates cannot remain harmonious; clearly, in successful economies, the respective Central Bank monetary policy rate consistently remains below three per cent rather than the oppressive 13 percent currently adopted by CBN.
Furthermore, inflation rates above three per cent are also anathema to social welfare and therefore, decried in more successful economies.
Regrettably, we shamelessly celebrate inflation rates which are nearer 10 per cent, despite the reality that all static incomes would lose over 50 per cent of purchasing value every five years in such event. The income contraction caused by inflation is primarily responsible for the apparent increasing poverty observed amongst pensioners and retirees as unjust reward for service to their fatherland.
Additionally, high inflation rates also constrain consumer demand, which normally drives investment and industrial expansion decisions to create those jobs, which reduce the level of unemployment.
Buhari is painfully aware that Naira devaluation only facilitates deepening poverty, this is clearly evident as the Naira steadily fell from its exalted exchange rate of a stronger Naira to a dollar; conversely, a stronger Naira will lift more Nigerians from poverty. Buhari should therefore interrogate why the Naira exchange rate remained weak much against rational expectation even when our reserves exceeded $60 billion.
Incidentally, weaker Naira rates will, irrespective of crude oil price, also instigate higher fuel prices domestically and make the abolition of fuel subsidy very unpopular. On the other hand, stronger Naira rates will reduce fuel prices domestically, and ultimately eliminate annual subsidy values of about N1000 billion and make the collection of a sales tax on fuel possible.
Furthermore, a stronger Naira will also make fuel smuggling unprofitable and unattractive and ensure uncontested deregulation of the downstream sector by government. Moreso, a weaker Naira will also make current electricity tariff unsustainable for operators.
Clearly, the excruciating burden of ever-surplus Naira also feeds the pool of funds that facilitates corruption and is also responsible for abnormally high inflation and interest rates and is equally responsible for unyielding Naira depreciation. A disciplined investigation will surely reveal that systemic surplus Naira is primarily caused by CBN’s creation of fresh Naira values for monthly distributable dollar revenue.
We will certainly lament Buhari’s failure four years tenure if he, like his misguided predecessors, also ignores this reality.
Save the Naira, save Nigeria!!
•Boyo is a Lagos-based economist.