DESPITE FLASHES OF RECOVERY, NIGERIAN ECONOMY REMAINS IN DISTRESS
29 years would have been averted but for the delayed response by the Muhammadu Buhari administration to the structural adjustments needed to navigate through an economic crisis.
That failure, they posited, resulted in a contraction of the gross domestic product (GDP) growth rate of 2.06 per cent in the second quarter of 2016.
But instead of admitting that it had taken a number of missteps that could have averted the worst economic contraction in 29 years, the presidency and Ministry of Budget and National Planning attempted to put a spin on the damning economic data released by the NBS and engaged in a game of one-upmanship with the International Monetary Fund (IMF), assuring Nigerians that the economy will beat the fund’s gloomy forecast of -1.8 per cent for the year.
One other misstep of the Buhari administration was the way it managed the Niger Delta issue, a region from where the bulk of the nation’s revenue is tapped. This exacerbated the nation’s woes as militants blew up oil installations, culminating in drastic revenue losses. The country bled from both price and quantity shocks.
Flowing from a cocktail of these factors and more, Nigeria officially slipped into a recession based on NBS’ GDP growth figures for Q2 2016, which showed that the economy contracted by 2.06 per cent, compared to the negative growth of 0.36 per cent recorded in Q1 2016.
Since then, the economy has recorded fifth consecutive contractions or negative growth.
Hardship Although most Nigerians and corporate entities have been buffetted by the negative impact of heavy loss in oil revenue, they had managed to stay afloat. However, the economy’s slide into recession in the second quarter of 2016 has worsened the situation for individual and corporate Nigerians.
As at the second quarter of 2016, the NBS reported that 4.8 million Nigerian had lost their jobs. The banking sector was among the worst hit due to the implementation of the Treasury Single Account (TSA).
The manufacturing sector also got a bitter pill of the economic downturn with capacity utilisation at very low ebb.
Cost of food has also hit the rooftops and most families can barely afford three square meals a day. Parents whose children and wards are studying abroad cannot afford the foreign exchange needs due to the scarcity and high exchange rate of the greenback.
Many are on a suicide binge as the economic monster bares its fangs. These economic adversities are still very much around although optimism is strong in the air that Nigeria will exit recession soon following positive signals on some economic fundamentals.
How the govt has managed the economy In preparing the 2016 Budget, which was the first the Buhari administration put together by itself, the government opted for an expansionary budget.
The Buhari administration, in a bid to pull the country out of recession, decided that a potent way was to resort to huge spending and consequently embark on an expansionary budget of N6.06 trillion in 2016.
It also introduced the Social Intervention Programme (SIP) with a N500 billion allocation in 2016. Under the SIP, the national home school feeding programme was one of the four social investment programmes for poor and vulnerable Nigerians designed by the administration. The other three programmes were: N-Power Volunteer Corps, which was designed to hire half a million unemployed graduates; Government Enterprise and Empowerment Programme (GEEP), which provides soft loans ranging from N10,000 to N100,000 for artisans, traders, market women, amongst others; and the Conditional Cash Transfer, which provides a stipend to the most vulnerable and poorest Nigerians.
Similarly, the Budget 2017, which was recently passed the 2017 Appropriation Bill of N7.441 trillion by the National Assembly is retaining a budget of N500 billion for the SIP.
$30bn External Borrowing Plan In the 2016 Budget, the federal government set out to borrow $29.96 billion from multilateral institutions to finance capital projects and budget deficit under the medium-term External Borrowing Plan. The approval of the borrowing was mired in controversy when it was presented to the National Assembly.
Eurobond Issue Nigeria’s $500 million notes under the $1.5 billion Global Medium Term Note programme was recently consolidated to form a single series with the existing $1 billion notes, which the country issued in February and will mature by 2032.
The federal government therefore announced that it priced its offering of the $500 million aggregate principal amount of notes at a yield of 7.5 per cent under the $1.5 billion (increased from US$1 billion) Global Medium Term Note Programme.
The N1 billion notes (Original Notes) were issued on February 16. The terms and conditions of the $500 million notes, said the statement, will be identical to those of the Original Notes, paying a coupon of 7.875 per cent per annum and maturing on February 16, 2032.
When the $500 million Eurobond was issued, it was eight times oversubscribed. The proceeds of the Eurobond are to be channeled into defraying domestic debts.
Bailout to states By September 2015, about 27 states of the federation were broke and were unable to pay salaries. The governors, cap in hand, approached the federal government for a lifeline. Consequently, a bailout was arranged for the states. At the last count, N1.5 trillion has so far been given to the states as bailout. But there are allegations that some governors diverted the bailout.
However, the Federal Ministry of Finance has set up Financial Sustainability Plan to check abuses by states in the management of bailouts and states’ finances.
Efficiency Unit The federal government also last year set up an Efficiency Unit (E-Unit) to monitor its agencies and ensure all expenditures are necessary and represent the best possible value for money.
The E-Unit is domiciled at Federal Ministry of Finance and is expected to review all government overhead expenditure, to reduce wastage, promote efficiency and ensure quantifiable savings for the country.
It works across all Ministries, Departments and Agencies to identify and eliminate wasteful spending, duplication and other inefficiencies, and is expected to identify best practices in procurement and financial management and share such knowledge with the MDAs to ensure its adoption
Economic Recovery and Growth Plan (ERGP) The medium-term ERGP (2017-2020) which was initiated by the Ministry of Budget and National Planning, has among its broad strategic objectives, restoring sustainable, accelerated inclusive growth and development; investing in the people; and building a globally competitive economy.
It targets the growth of Nigeria’s gross domestic product, GDP, by 2.19 per cent in 2017 and 7.0 per cent by the end of 2020.
It also envisages reducing inflation to single digit by 2020 and increasing federal government’s revenues from N2.7 trillion in 2016 to N4.7 trillion in 2020. It prioritises key turnaround interventions and enablers to generate concrete, visible impact by 2017 and articulates medium term economic policies for implementation between 2017 and 2020.
It equally focusses on achieving macroeconomic stability; economic growth and diversification; competitiveness and business environment; and governance and security.
Tax Reforms Nigeria’s tax-to-GDP is considered about the lowest in Africa. In realisation of this and the quest to bolster the revenue base, a national tax policy review committee was consequently put in place by the government.
The committee has already turned in its report, but the present government says it seeks to raise taxes, not reform taxes.
The acting President, Prof. Yemi Osinbajo recently approved the revised national tax policy to address low taxation in the country.
The Finance Minister, Mrs. Kemi Adeosun said: “What the (review) committee report has shown is that we should look at actually increasing VAT on some luxury items. At five per cent, we have lowest VAT. “And while we don’t think VAT should be increased on basic items, if you are going to drink champagne, for instance, in the UK, you drink champagne, the VAT is 20 per cent. So why should it be 5 per cent in Nigeria. “So, they have made recommendations that we should pull out some luxury items and increase VAT on those items immediately. “And I think that is a very valid and sensible suggestion which we are going to take to the national assembly to see how we can implement it.”
Budget performance The federal government recently disclosed that N1.2 trillion of a capital budget of N1. 5trillion in the 2016 budget had been implemented. Although many feel the impact is not being felt. The good thing is that the administration has decided to give capital investment increased attention even in the 2017 Budget.
The Downsides Despite some positive signals in the economy, the recent report by the NBS has been everything but positive in many fronts.
In its “Selected Banking Sector Data”, the NBS said banks reduced their lending to the economy by N115billion in the first quarter of 2017, even as Nigerians withdrew N1.5trillion through automated teller machines (ATMs) during the quarter.
One other misstep of the Buhari administration was the way it managed the Niger Delta issue, a region from where the bulk of the nation’s revenue is tapped. This exacerbated the nation’s woes as militants blew up oil installations, culminating in drastic revenue losses. The country bled from both price and quantity shocks