Options for ERGP Financing
The Minister of Budget and National Planning, Senator Udo Udoma last week assured Nigerians that the newly launched Economic Recovery and Growth Plan (ERGP) would not be abandoned like previous programmes.
According to the minister, the implementation of the plan would be driven by a task force to be constituted by the federal government.
Udoma said the federal government is also working on a detailed implementation roadmap that would spell out timelines for deliverables and how the targets set in the ERGP would be achieved. He said the roadmap for implementation would also include details of costs of achieving the targets.
The ERGP is a four-year plan designed to pull Nigeria out of recession and reposition the economy for sustained, inclusive and expansionary growth. Other highlights of the plan include the government’s target to increase oil production from 2.2 million barrels per day (mbpd) to 2.5mbpd by 2020.
The government, through the Central Bank of Nigeria (CBN), also aims to implement a market-determined exchange rate regime to build confidence and encourage foreign exchange (FX) inflows.
Real GDP under the plan is also projected to grow by 4.62 per cent on average over the planned period of 2017-2020, from an estimated contraction of 1.54 per cent in 2016.
However, real GDP growth is projected to improve significantly to 2.19 per cent in 2017, reaching 7 per cent at the end of the plan period. The core vision of the plan is anchored on sustained inclusive growth.
Udoma also said the delivery unit for the ERGP would be manned by a special team domiciled in the Presidency, and would be tasked with the function of coordinating the implementation of the plan to ensure synergy among implementing agencies.
The taskforce, he further explained would be responsible for monitoring the implementation and filling in feedback.
To this end, in order to ensure that the ERGP doesn’t go the way of other national planning programmes in Nigeria, experts who spoke at the ‘Bullion Lecture,’ titled: “Financing Nigeria’s Economic Recovery and Growth,” organised by the Centre for Financial Journalism, in Lagos recently, stressed the need to ensure that members of the organised private sector are provided the right incentives to be able to effectively play their roles in the ERGP.
To achieve the broad and associated sub-objectives detailed in ERGP, a total of N75.03 trillion gross domestic investments are envisaged.
Moreover, it is envisaged that the contribution of federal and sub-national governments will decline from 14.04 per cent and 12.61 per cent in 2017 to 8.11 per cent and 7.77 per cent by 2020, respectively. Correspondingly, the contribution of the private sector is expected to rise from 73.35 per cent in 2017 to 84 per cent by 2020.
Clearly, the bulk of the investment programme is expected to come from the private sector. Also, the sub-national governments are expected to contribute at least N1.85 trillion in capital expenditure annually throughout the plan period.
But the Executive Chairman, African Centre for Shared Capacity Development Building, Prof. Olu Ajakaiye, who was the guest lecturer at the event, noted that it was evident that continuing the exclusive reliance on issuance of interest-bearing debt as a strategy for deficit financing from domestic sources in Nigeria would escalate debt service, cause interest rates to rise and crowd out the private
Available data from the Debt Management Office showed that as at 2015, the CBN held less than 10 per cent of total interest-bearing domestic debt stock.
“Therefore, financing budget deficit by issuing irredeemable fiat non-interest bearing monetary liabilities of government by the CBN should be considered seriously. This approach which had been dubbed Overt Money Finance has the benefit of stimulating the economy without raising interest rates and crowding out the private sector as well as stoking cost push inflation.
“The approach however requires the monetary and fiscal authorities to coordinate their activities and work in concert to stimulate the economy at lower direct costs.
“In this regard, the monetary authorities may have to give greater consideration to economic growth and employment generation and be ready to accept higher inflation benchmark in the medium term.
“In other words, the gradual reduction in inflation rate from 15.74 per cent in 2017 to 9.9 per cent in 2020 is a reasonable outcome that should be supported by the monetary authorities. Accordingly, they should not be too unhappy with double digit inflation rate between now and 2019, for example.
“Meanwhile, the usual risk of abusing this approach has been significantly reduced in the Nigerian context as the fiscal authorities must comply with the Fiscal Responsibility Act, which already prescribed a ceiling of three per cent of deficit GDP ratio,” Ajakaiye explained.
The economists also stressed the need for the government to be mindful of another round of external debt overhang in the future.
He pointed out that an external debt management strategy which aims at maximising low-cost concessional external debt while minimising non-concessional and commercial debt should be sustained during the plan period.
“In this connection, the current arrangement whereby over 80 per cent of total external debt is stock is concessional should be sustained so as to keep the external debt service quite small.
“It will also be necessary to broaden the tax base and improve the tax administration capacity and process in order to mobilise additional non-oil revenue to support the various programmes and activities aimed at structural transformation of the economy envisaged in the ERGP,” he added.
Specifically, Ajakaiye said it will be necessary for the Federal Inland Revenue Service (FIRS) and the Federal Ministry of Finance to sustain the on-going reforms aimed at plugging the leakages, especially the introduction of Tax Identification Number system, approval of reasonable incentives for staff of FIRS, sustained capacity building and application of information technology in tax administration.
He pointed out that tax evasion and avoidance are among the set of challenges plaguing tax administration in Nigeria. Apart from paid formal private sector and public sector employees, most affluent Nigerians secure necessary technical assistance to pay the minimum tax, if at all, he said.
Furthermore, he recommended that given the high proportion of private sector contribution to total investment envisaged by the ERGP, the Nigeria Stock Exchange (NSE) should be a major avenue for mobilising capital.
This, he said is especially so because the stock exchange provides a veritable institutional arrangement for mobilising investment from the general public into the stock market.
According to him, in view of the very large proportion of private investment in total ERGP investment, efforts should be intensified to increase the number of companies listed on the NSE.
“This way, government portfolio can be divested to the general public, including foreign investors and avoid the controversial and sometimes questionable privatisation arrangements.
“In that case, government divestment can be instrumental in mobilising financial resources to support worthy development activities, including infrastructure projects.
“In addition, the capital market will be efficacious in mobilising the much needed private investment capital to support the ERGP programmes if its operational modalities modified to enable it mobilise capital for infrastructure projects like construction which can be put up on toll collection,” he explained.
He noted that the Nigerian pension funds had grown substantially and presents an opportunity for long-term investment capital under appropriate regulatory conditions. Pension funds have increased from N815 billion in 2007, to N6 trillion as at November 30, 2016.
“However, if capital projects envisaged in the ERGP are packaged in ways that can guarantee security and they can yield reasonable returns, pension funds could be encouraged
“Government in concert with the CBN should consider issuing project tied bonds and market them among Nigerians in diaspora. It is good that government has more seriously returned to planning. It is hoped that this plan would be implemented faithfully,” he added.
On his part, the Chief Consultant, B. Adedipe Associates, Dr. Biodun Adedipe, pointed out that the problem with national planning in the country has always been that of the execution as well as internal inconsistencies.
“If any plan has to work, first you have to be clear about where you are going and that means by 2020, we would not be where we are today. When you have a plan for a nation, there are three important components to that: the first is that they place out the policies, deriving from your policies are programmes and deriving from your programmes are projects.
“In which case, you use your projects to deliver your programmes and your programmes deliver your policies. So, if it does not cascade in that manner, it would just be an academic exercise,” he explained.
Adedipe, while commenting on issues around financing options for the ERGP, stated that naturally, people respond to incentives, while stressing the need to encourage private sector investors.
“So, in this case, there should be incentives that would make the private sector respond to the lofty objectives in this plan. Equally, if the government wants to ensure that the private sector remains the key to achieving this plan, it is to ensure the safety of the money they commit to the project, stakeholders must take ownership of the plan and we must be bold and creative.
“There are many people outside Nigeria that may not agree with what we want to do, but we must stand our ground. If we are persuaded that we must achieve this plan, whatever policy choice we adopt, we must stand by it,” the economist stressed.
In his remark, the Rwandan High Commissioner to Nigeria, Stanislas Kamanzi, recommended that as part of efforts to achieve the plan, the Nigerian government should use microfinance as a tool for poverty alleviation.