Bagudu: Tibubu’s Plan to De-risk Consumer Credit, Mortgages Will Revitalise Economy
The Minister of Budget and Economic Planning, Senator Abubakar Bagudu, in this interview on the sideline of the Arise News/KPMG 2024 Budget Day in Lagos, gave an overview of the 2024 budget, plans by the government to de-risk consumer credit, mortgages, agriculture to drive economic growth. He also spoke about the government’s resolve to stay within the limit for Ways and Means and the government’s drive for a private sector- led economy. presents the excerpts:
“We chose democracy, and democracy has an opportunity cost. We have seen budget shutdowns in advanced democracies, particularly the U.S. because power is split and given to different institutions. In fact, the person who has the last say in appropriation under our laws as is the legislator, because it is the National Assembly that passes the final document.”
Give us an overview of the 2024 signed by President Bola Ahmed Tinubu
Ijust want to contextualize, the 2024 budget that was passed by the National Assembly, derived from the renewed hope of agenda, manifesto, which President Bola Ahmed Tinubu campaigned and was elected upon. Central to that agenda is a reflection of the consensus that the nation has achieved, which is contained in agenda 2050. Meaning, we can grow faster than we are growing, because we should be growing near double digit growth. It is not unusual, it has been done in our country, it has been done elsewhere before and our rate of population growth, our infrastructure needs, is such as that, we should be at that level of growth. In fact, the agenda 2050, which is our long-term plan, says that we need to invest $100 billion a year to achieve an outcome of about $33, 000 per capita by the year 2030.
And most of that should come from the private sector. So, because of that, the first major thing that President Bola Tinubu did as you all know, on the day he was sworn in, he said, we can’t afford distractions and he removed fuel subsidy, allowed the central bank to determine the exchange rate, just to give the private sector confidence that it’s not going to be a discriminatory macroeconomic polity.
We don’t have the public funds to invest for our development; we rely on the private sector. So, we have to do a balancing act and provide economic stability and certainty, that the private sector appreciates.
I think we paid attention, we have seen rating agencies, revising the Outlook for Nigeria, we have seen the International Monetary Fund (IMF) saying that inflation will come down. We have seen the market for our bonds, Euro bonds, which is a reflection of how investors think about our country doing better.
So, that’s the context that goes into the 2024 budget. And the $28.77 trillion budget that was passed contains a lower deficit than the 2023 budget, because we want to maintain the signal. And then 39% of the budget is capital expenditure, which is the highest in a very long time in our national life.
When the, there is a core capital, which is N9.19 trillion but most people do not add the capital component of the statutory transfers, which are transfers that go to the National Judicial Commission (NJC), Niger, Delta Development Commission (NDDC), North East Development Commission (NEDC), and a number of them. So, the figure consists of both capital and, so when you disaggregate it and add it, you see that the capital is actually close to N11 trillion.
And spending had increased in all the priority areas, defense and national security, agriculture and food security, infrastructure, roads, housing, and then creative economy, innovation, digital, science and technology, just to underscore the importance of innovation in enabling us to achieve a near double digit growth, as well as the creation of a system of funds, N100 billion for consumer credits, because in some countries, most economic activity is driven by the availability of credit. I don’t have to buy a car and pay 100 per cent. I don’t have to buy almost anything and pay 100 per cent. But here, potential demand is suppressed because not many people can afford to pay 100 per cent for anything.
So, it was recognised that a way to support manufacturing activity is to provide a pool of capital, which can de-risk consumer credit. Equally, N65 billion was provided for mortgages, mortgage de-risking. This is too small in the context of our mortgage need, but the idea is to signal to mortgage providers that we mean business, and we will de-risk mortgage lending so that it’s more profitable. So that the private capital, private mortgage providers who can help us support the millions of homes that are needed will come into the market and boost economic activity.
Equally, we have provided N100 billion for agricultural fund. This again, just like the mortgage fund, is to de-risk so that companies that will not otherwise come will see that the government is putting its money where its mouth is, so to say, and, as well as N100 billion to support school feeding and better nutritional, nutritional outcomes. We have provided N550 billion in anticipation of a negotiated wage increase with labour unions. So, money has been provided to meet commitments that we anticipate and as well as providing more for capital in the priority areas and to meet our obligations.
My concern is on the deficit. I know it’s much lower than the previous year. The government still plans to raise N6 trillion from the domestic market and that
means that the government will continue to crowd out the private sector, what is your response?
It’s not going to crowd out the private sector because the first thing the president had directed is that we are no longer going to borrow money unlawfully. So the central bank is not going to print money for the government anymore. If, to the extent that we would borrow from the central bank, it is within what the law allows. The law allows, anticipates that every government around the world may need to go to central bank and say, “a consignment is coming next week. I need 5 per cent of the pack this week,” So it’s, not an unusual thing. So that’s why our laws allow that up to 5 per cent. What we have been doing wrong is to go beyond that 5 per cent limit. So now there’s that clarity.
Where we are to borrow, we will issue bonds. It’s an option. People can invest. It even provides opportunity for some private investors who have money to buy government bonds. There are those who are looking. So certainly it will not crowd out the private sector.
In the summary you gave to us, you alluded to de-risking, part of de-risking in key priority areas, like agricultural, housing, so on and so forth. Is this an omission of your plan not to de-risk, providing credit for MSMEs, since you wanted our new economy to be private sector driven? I think when I talk about the consumer credit, consumer credit affects everyone when we de-risk it and you may recall that in the first budget that was signed into law in July by Mr. President Bola Tinubu, a N75 billion fund was provided for MSMEs to support palliatives, as one of the elements of palliatives, and equally a nano credit fund of N50 billion.
So, the technology penetration in the last few years has grown in quantum leap. Today, we have many technology companies that have assisted in de-risking. So, today, with identity, it’s easier to establish the GIS to link activity to a place is very easy. These are all tools that have evolved significantly, and they have provided lenders and others the opportunity to know, to reduce the risk, particularly location and identification risks.
The National Assembly expanded both revenue and expenditure by adjusting the projected exchange rate, which we thought the Ministry of Budget and Economic Planning should have envisaged. And between the executive and legislature, who could be closer to the realistic exchange rate?
We chose democracy, and democracy has an opportunity cost. We have seen budget shutdowns in advanced democracies, particularly the U.S. because power is split and given to different institutions. In fact, the person who has the last say in appropriation under our laws as is the legislator, because it is the National Assembly that passes the final document.
The executives can provide their proposals, just like the President graciously did on November 29. But the wisdom of the National Assembly was that the support exchange rate was much higher than the proposal we submitted. And they felt it should go up just even our revenue expectation from government enterprises. We have a very committed democrat in the President who, despite his opinion, knows that in democracy we have to respect institutions. Not surprisingly, we accepted what the National Assembly said, while calling on them, to join us in tasking everyone through oversight, interrogation and others to ensure that we achieve those thresholds we set for ourselves.
What is the discussion within the government like to ramp up on investment, especially from outside to the country? Is it possible to bring all the ministries into the conversation to realise that each and each is an investment point?
The Ministry of Budget and National Planning is a custodian of the national consensus, which is a perspective plan on where we want to be in 50 years.
Other ministries are literally implementing that consensus. So, we remind all, at all times we engage on inter-ministries meetings that a federation consists of federal and sub-nationals needs an irreducible minimum of investment that should go into our economy per year. The estimate is about $100 billion and only about 16 per cent of it can come from the public sector, meaning we should roll out the red carpet for private investors.
The President, in his wisdom, also created the coordinating mechanism for the economy under the Minister of Finance and Coordinating Minister of the Economy, Olawale Edun. And we meet all