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Review… Nigerians may be poorer in 2016

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In from Ali Smart…

As the Chinese would say, may we all live in interesting times. Certainly for Nigerians, the last 12 months have been quite interesting. The year 2015, which winds down in about two weeks’ time has been quite eventful. The year suggested a sort of foreboding of trouble due to the uncertainty of election but thankfully, the worst didn’t happen.

But the new administration has not had a smooth sail since it took over the reins of power clearly six month ago, no thanks to the parlous state of the economy.

The country, like many other oil- producing countries have suffered terribly from dwindling revenue caused by fall in global oil price down from $150 to $40 per barrel.

Besides battling dwindling revenue, the President Muhammadu Buhari-led administration had taken some policy initiatives which have caused a lot of headwinds in the economy, including the banking sub-sectors among others, with Nigerians asking exasperatedly whether the government has what it takes to turn around the economic fortunes of the country.

2016 as a metaphor of poverty

While Nigerians are still trying to get used to the biting economic crunch, indications are that the coming year is not going to be any easy as far as the state of the economy is concerned.

Interestingly, Minister of Finance, Kemi Adeosun gave the indication that 2016 is going to be a tough and difficult year for the country. She who spoke recently at the opening of the 7th Annual Bankers’ Committee retreat in Lagos, acknowledged that the country is faced with some fairly significant micro-economic challenges that require some fiscal housekeeping.

According to her, “It is going to be tough and we are going to have to make extremely tough decisions. We have got the resilience and space to do that.”

Expatiating, she said: “To do so, we need to do some fiscal house keeping. We have to control the significant challenge we have around recurrent. If you look at recurrent at a percentage of our total budget with the just approved supplementary budget, it is about 90 per cent. If we continue in that trajectory, every penny we borrow will go into recurrent.”

The minister who was enthusiastic that Nigeria can overcome the challenges however warned that she is not attempting to white wash everything or paint a rosy picture.

Shedding more light on the parlous state of the economy, Mazi Okechukwu Unegbu Chairman/Chief Executive, Maxifund Investment Plc and former President of the Chartered Institute of Bankers of Nigeria (CIBN) said the country has a tough time ahead.

“Our economy is in a mess. I addressed the same issue you raised now few days ago at a live programme on TV. I did say that yes in the second quarter of 2015, the Gross Domestic Product was 2.57%, whereas at the first quarter, it was 4.2%, which means there is a decline. Remember, it was 7% before and later 6.5% and now 2.57%, which means we’re in a recession. But the CBN governor said it may be in 2016. He was just being modest as far as I’m concerned. In actual fact, we’re in a recession. Economic recession means economic suffering. Nigeria currently is facing economic doldrums. What we have to do is to avoid a situation where Nigeria becomes a very highly depressed economy.”

In search of a shoestring budget

Federal government has proposed a national budget of N6 trillion for 2016 fiscal year, allocating 30 percent of the budget to the capital expenditure.

It has also approved and submitted the Medium Term Expenditure Framework, MTEF, to the National Assembly.

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Briefing State House Correspondents after an emergency meeting of the Federal Executive Council, FEC, presided by President Buhari at the Presidential Villa, Abuja penultimate Monday, the Minister of National Planning and Budget, Udo Udoma stated that in view of the current economic realities, FEC predicated the budget on $38 dollars of barrel of crude oil as benchmark for the MTEF.

He said: “The Council approved the Medium Term Expenditure Framework, MTEF which sets out the policies of government over the next years. It sets out the fundamental economic underpinning of the budget.

“The highlights are as follows: we project and we are working with $38 crude oil price, we consider that to be very conservative but because of the uncertainty, we felt that we should start with a conservative crude oil price.”

Speaking on the 2016 proposed budget, Dr A. O. Ogunyemi, a budget historian of Obafemi Awolowo University Ile Ife, said: “The country needs a budget of N6 trillion and maybe even more. Analysing the expenditure outlook of the government, this budget is reasonable because the economy needs to be jumpstarted. The growth rate is very slow at 3.4 and 3.6 percent when the projected growth is 6.7 percent, meaning the government needs to do something about spurring this along.”

The government, he said, “needs to change from an instrumental budgeting system to a zero-based system. With the zero-based budget you don’t give money based on the benefit of doubt. Every expenditure head that needs money must justify why he needs it. There are several benefits of this system including the blocking of wastage and leakage as well as ensuring transparency, accountability and value for money and the instrumental budgeting system we are utilising now does not permit all that.”

Unfounded fears?

The outlook for next year looks scary but economic managers have allayed fears of any foreboding of trouble.

Firing the first salvo, the Director General, Debt Management Office, Dr. Abraham Nwankwo, said that there is no cause for alarm over the debt profile of the country.

Nwankwo also justified the loans taken by the country saying that repayment period for most of the loans is spread for 40 years.

The DMO boss put the debt profile of the country at $64 billion with 84 per cent of it owed internally and 16 percent accounting for external debt.

He said, “We have been sensitising Nigerians that we need to do better because our tax GDP ratio is very low compared to countries in our debt role, their entire GDP ratio is about 18 percent whereas for Nigeria, it is about six percent which means that we are not being effective in collecting taxes to reflect the size of our economy.

“This has implications for debt service. Certainly there is the need to be careful even though there is space we need to relate debt service to revenue. The solution is that we have a big gap to fill because when we move upward from the 6 percent tax GDP ratio, we will have a lot of money to solve our problems including servicing our debts.

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“For now our debt servicing GDP ratio is still very low but we are optimistic because there is room to collect tax from the existing level of economic activities.”

On the proposed borrowing in the Medium Term Expenditure Framework for the 2016 fiscal year, he said: “I want to assure you that what the government has done is in the right direction because even before the collapse of the oil prices, it has been estimated, more than five years ago that Nigeria needed a minimum of $25bn per annum continuously for up to 10 years to enable it close its infrastructure deficit.

“That has been established by all relevant experts, and institutions.  In addition, the collapse of the oil prices by our own estimate shows that public revenue from oil had dropped by about $16bn per annum.

“Borrowing is being done to achieve positive impact on the economy, it will lead to growth, creation of employment, and build solid capacity for the future which will help us to diversify our economy.

“What the government is planning to do now is to explore at least five out of the 34 solid minerals that we have. We will develop, and process them for export.

“From the Debt Management Office perspective, the MTEF/FSP as presented to the National Assembly, is perfect for the times and a good recipe for dealing with the challenges of the collapse of the oil prices and the need to rapidly develop and diversify the economy, build infrastructure, such that it would act as a strong base for growth in agriculture, solid minerals, petrochemical and others.

“For a country to achieve a sustainable development, it should not rely on only source. Aside revenue generated, there are openings in local and international borrowing. If we must borrow, we must have options.

“Most of the loans we take are 40 years but it is a good thing too to space. It is like giving it free. The crucial thing is to use it on investments that will last for years. It is not in every case that borrowing externally is bad.”

Plausible as the DMO boss may sound some analysts hold the view and very strongly too that Nigerians would be more convinced if all these soothing words would bring more food on the table, or improve their daily standard of living.

With the drop in prices of crude, and the naira having a free fall against major foreign currencies, many analysts fear that the coming year may be very gloom for Nigerians and the nation’s economy, more so, as the current government has not done much to show how it intends to diversify the economy, except for the usual political promise and talks.

So, Nigerians may have to brace up for an austere 2016, since the Buhari administration has prepared a ready-made excuse of blaming the fiscal woes, and its difficulties in steering the economic ship on the previous administration of Dr. Goodluck Jonathan.

 

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0 Comments

  1. Mike

    December 16, 2015 at 9:55 am

    Time has come to stop blaming the previous administration and buckle down to repairing our economy. There was widespread looting of our treasury, probably but we must stay alive and continue to move our economy forward. While trying to recover what may have been ‘stolen’, we must also move on to a better economy and life for our people. We cannot afford otherwise.

  2. Oise Oikelomen

    December 16, 2015 at 2:10 pm

    When OBJ took over from the military in 1999 he inherited a battered economy occasioned by gross mismanagement and greed of unparalleled proportions. Despite that rotten legacy, he managed to achieve a couple of significant things, key among them, the strengthening of the middle class which had almost disappeared under the military. OBJ is not a saint, but under him life generally got better for Nigerians. Perhaps the reason behind his achievements is that he focused on what he could do right instead of what his predecessors had done wrong. PMB and his crew might want to take a cue from that.

  3. Emmanuel Ofomana

    December 16, 2015 at 10:44 pm

    Aimless APC, let’s see how you build an Economy you destroy with your mouth everyday. Imagine a local or foreign investor reading this post, will they invest?

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