Reforms needed for real economic growth
The implications are, first, that only expectations from borrowing or incurring budget deficit were attainable. It is worth noting that offers for domestic and external borrowings were constantly oversubscribed owing to their high-interest rates despite the fact that productivity in the public sector is low and even negative in many areas.
Second, because recurrent and capital projections of the budget represented roughly 70 per cent and 30 per cent respectively, a significant proportion of recurrent expenditure was borne using borrowed funds. Third, most capital budget projects and programmes went wholly unaddressed or at best were only partially financed and remained uncompleted.
Fourth, given such recurring pattern of budget implementation, the Accountant-General of the Federation Idris Ahmed, during an eve-of-workshop visit to the Emir of Kano Muhammadu Sanusi II in late June 2019, described the incurred debt profile as efficiently sustainable in spite of the fact that debt service, a first-line charge, already accounted for 70 per cent of the realised revenue.
Nonetheless, while subsequently addressing the Third National Treasury Workshop, the emir decried the continued payment of subsidy on petrol and electricity tariff for not only being unsustainable but also helping to push the economy into insolvency.
Characterising petrol subsidy payment as financing private consumption of (individual and corporate) persons, the emir advocated that the funds being paid on subsidy should be ploughed instead into improving nutrition, education, healthcare and infrastructure which are deserving of government’s attention in order to ameliorate the rising rate of extreme poverty.
The emir also asserted that fuel subsidy over the years had denied the country the benefits derivable from increased crude oil revenue attributable to price jumps occasioned by intermittent crude oil supply disruptions in the Persian Gulf region.
However, that assertion is similarly applicable to the country’s total export receipts from oil and non-oil sources, which over the years have hardly benefited the country. Notwithstanding the huge combined export earnings, the poverty incidence level, which stood at 35 per cent in the 1970s, rose to over 72 per cent by 2012.
During the period, the country steadily receded behind her quondam economic peers such as Malaysia and South Korea, with Nigeria eventually sinking into the rank of the poverty capital of the world by May 2018.
The ranks of Nigerian living in extreme poverty swelled further as the full-year 2018 GDP growth rate of 1.8 per cent fell short of the population growth rate. The projected 2019 GDP growth lags behind the increase in population as well.
The 2019-24 CBN Policy Thrust enunciated by the CBN governor on June 24, 2019, exudes profusely reasons why the country has not benefited commensurately from its past humongous export earnings. But rather surprisingly, the same statement holds forth prospects of reversing the dismal economic trend as the CBN has rethinking both acknowledged that the challenges facing the economy are easily surmountable and accepted that, by working closely with the fiscal authorities, it is feasible to attain double-digit annual GDP growth rate, a development that will put mass poverty into rapid retreat.
But following the rethink, it should be swiftly added that the apex bank’s intention to prepare the way for fast-paced growth “by the next five years” betrays a lack of urgency to confront the dire economic situation facing the people.
Truthfully, the threshold best practice fiscal and monetary methods can and should be put in place within six months. That way, without being tethered by the 2019/20 budget projections, the economy would be primed to attain double-digit GDP growth rate beginning from 2020 calendar year.
Government and the governed and resident institutions win in a fast-growing economy. It will be outlined elsewhere how to achieve within six months the necessary macroeconomic stability and conducive production environment for business activities to bubble and throb and so enable the Nigerian economy to sprint at a double-digit growth pace.
But to that end, the government has a critical role to play. The yearned-for fast-paced growth rate will not be realised if over $50 billion accruing directly to the country’s public and private sectors yearly continues to be dissipated while policymakers expect the country to be developed with the paltry sums of million dollars being borrowed externally together with the pittance being doled out by development partners and multilateral agencies.
The Federal Government should implement reforms that facilitate raising sufficient additional non-oil revenue for priority spending on infrastructure and socio-economic projects and programmes.
In that regard, the above-advocated removal of petrol subsidy represents one of several sources of uncollected revenue that should be tapped forthwith. Petrol subsidy should go because of the infernal abuse and corruption associated with it. Another source of revenue which has remained dormant up till now but which the Revenue Mobilisation, Allocation and Fiscal Commission (RMAFC) should mobilise urgently as windfall concerns forex access tax
(FAT). The forex transaction sector is the only “flourishing” part of the economy despite being responsible over the years for the woes of the country’s agricultural and industrial sectors.
Besides facilitating genuine imports, the forex transaction sector, which handles forex wholly generated by other sectors, has acted as the conduit both for diverting forex to fund wholesale smuggling into the system and for treasury looters to stash away the country’s wealth in private foreign bank accounts.
The sector would be making amends, as it were, by at last paying tax toward rejuvenating the economy. The managed float exchange rate fixing system purportedly being operated, by definition, has neither multiple segment exchange rates nor several windows.
Consequently, the difference between the Appropriation Act exchange rate of N305/$1 and the Investors’ and Exporters’ window rate of N360/$1 offers tax-serendipity windfall which the RMAFC should gather into the federal kitty with neither initial pain to forex buyers nor adverse economic effect on the generality of the people. Were FAT being collected then, the volume of forex transactions during the 2018 budget year (from 20/6/18 to 19/6/19) could have netted over N3 trillion additional non-oil revenue.
A third revenue-saving aspect, which is derivable from properly implementing the managed float exchange rate system, is to slash the prevailing interest rates across-the-board by about two-thirds. Savings on funds being earmarked for debt service would be available for the execution of priority projects and programmes. Furthermore, by ensuring conducive conditions via the managed float system for business enterprises to blossom, avenues for increased non-oil revenue takings open.
If the illustrated revenue savings and collections had been harnessed in the 2018 budget year, there would have been revenue surplus instead of the 45 per cent shortfall in the revenue projections noted earlier. Thus Nigeria possesses the wherewithal for the economy to surge ahead. The Buhari administration should, therefore, stop slowing the pace of the country’s economic growth by swiftly carrying out needed reforms.
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