Tinubunomics, Dollar, Subsidy & Nigeria: Would Peter Obi or Atiku have done things differently?

As the impact of the unified exchange rate window and pegged floating exchange rate regime has pushed the exchange rate north of almost 30% devaluation on the parallel market and more than 100% on the official window, Nigerians are deferring their Japa plans and building a new taste for local items, among other things. Many, despite repenting of their global ignorance of the need to remove subsidies, have now embraced the knowledge that they must be removed but are not prepared to buy PMS to fill their car and generator tanks with three times the cost within the space of two months without any reasonable increase in their disposable income.

While most Nigerians have moved on and wouldn’t bother to rush to the fuel station to queue for the petrol with the remains of their salary value having now depleted by more than half, they are left ruminating on the following questions:

1. Is there anything the government can do or should have done to ease this whole brouhaha?
2. Would any other government, aside from the current one, viz., Peter Obi or Atiku Abubakar, have had a different outcome?

Nigeria’s $103 billion problem

First, let us understand the need for these sudden policies and?our big debt problem as a nation.?The Federal Government of Nigeria has long been known to be heavily indebted and, even at certain times, courted by bankruptcy.?In 1999, Obasanjo met external debt at $29 billion but graciously tunnelled an escape from bankruptcy through debt forgiveness and other strategies, which included the sale of unproductive government assets, privatization, progressive removal, and reduction of subsidies, leaving the external debt at $15 billion at the time of his exit in 2007. Unfortunately, he handed over to a welfarist, Yar’Adua, who reversed some of the strategies, thereby increasing external debt by $17 billion. Hence, between President Yar’Adua and Jonathan, the external debt had more than doubled to $32 billion by 2015. By the end of 2022, Buhari had rocketed the total debt by $73 billion, which brought the total debt to $103 billion. In?2022, Nigeria's debt service-to-revenue ratio?was 80.6%, a figure far above the World Bank's suggested 22.5% for low-income countries like Nigeria. With a low revenue-to-GDP ratio of 4.49% as of December 2022, Nigeria’s debt service-to-revenue ratio may surpass 100% in 2023, and according to Reuters, the FGN debt may likely rise to $172 billion in 2023 after a loan swap and new borrowing to fund the 2023 budget. This will immediately limit the fiscal space and the government’s ability to pay for its operations and functions unless urgent measures are taken to build revenue.

The government is therefore left with no other choice of survival but to either?increase revenue at all cost, negotiate debt relief or forgiveness, restructure all loans, or seek credit at the cheapest cost.

Each of the solutions listed above comes with its own pros and cons. For the sake of this article, we will limit the conversation to the Bretton Woods institutions (the World Bank and IMF), who seem to be the most accessible superheroes that can structure a way out for Nigeria at the cheapest rate and with specific structural changes as an additional price tag. The IMF is?reported?to have attached conditions that Nigeria must fulfil to be able to draw on the loan, including the removal of subsidies on petroleum products, the?scrapping of multiple exchange rates, and?the downsizing of its civil service.

This shows clearly that whether it was Tinubu, Atiku, or Peter Obi that was sworn in on May 29, they will still be saddled with leading an economy on the brink of total collapse and bankruptcy. It is pretty great to note that all the candidates agree on this in their manifestos.

The government needs money, and the institutions that are ready to borrow it at cheap rates want all subsidies and leakages removed, and it is quite suggestive that the three of them will at the very least implement those conditions as a relief to the country even if they do not immediately go the IMF route. If they all do, the next step would be the measures put in place for the last man. Transfer payments are a one-time palliative measure, but they barely work if they are converted into handouts.

All indications from the policies of President Tinubu, or?Tinubunomics, seem to point to the IMF route, as he seems to be ticking each box, from his first speech after being sworn in on May 29 as the President of the Federal Republic of Nigeria to the numerous policy declarations. As expected, Nigerians are beginning to experience a lot of pressure from the implementation of these conditions, and it is now a no-brainer that palliative measures should be put in place to ease the economy. The Buhari administration envisaged this and made a provision for a total of N819.5 billion naira to be appropriated for the relief of the bottom of the economic pyramid. Standing on this provision, President Tinubu has requested from the National Assembly that N500 billion be disbursed.

How will this palliative be distributed, and who gets what?

The FG has said it is working with the World Bank data and would ride on the success of the last administration’s TraderMoni and MarketMoni in the distribution of these palliatives. This, however, raises a lot of questions among the populace around the criteria used by the World Bank or even to select the multidimensionally poor, and even if the funds are diligently distributed, each recipient will receive just $10/N8,000 each, which at the inflation rate and CPI cannot sustain anyone for more than a week.

The efficiency of distribution is even more critical for this to work. It is hard to achieve, and it has to be a one-time palliative measure with a definite duration before the Bretton Woods institutions will open their wallets. The distribution of this will either be done directly by the FG, who will be the one crediting the accounts, or by going closer to people through local, state, or legislative channels.

Transfer payments recorded some?“success”?under the PMB administration as led by Osinbajo (TraderMoni, MarketMoni, etc.), hence the blueprint can be followed for the economic palliatives. This, however, may not be as effective when looking at the abstract relationship?(being too far away)?between the FG and everyday Nigerians and the suspicions surrounding the generation of the database. Local governments, however, are closer to the people, but they do not have any autonomy, which means the state government can cannibalize the funds; hence, it is difficult to use their channel. It is a bit clumsy legally and politically to exploit the State governments for transfer payments, so FG will most likely avoid them.

The last option will be to use the 469 legislators that are expected to have a presence across all the 780 local government and area councils?(774 LG + 6 AC)?representing the actual grassroots in Nigeria, but again, it creates a political situation that can be exploited. There is, however, a political loophole to exploit, which may interest the executive. If legislators are added as a channel for distributing these transfer payments to the purported 100 poorest million Nigerians whose database is with the World Bank, it places a moral burden on the legislative arm, and the performance and result of the palliative exercise can be used as either a “quid pro quo” (scratch my back and I scratch yours) to always have their way, turning the Assembly into a rubber stamp, or even worse, creating an antecedent to always refer to avoid checks and balance.

The case for reducing the cost of governance and?Implementation of the Oronsanye Report

The last thing on the IMF's list is the downsizing of its civil service, which has led to calls for the FG to implement the Oronsanye report. The civil service is one of the most sensitive sectors in Nigeria, and it is filled with corruption and inefficiencies. However, for any government to be successful, it needs the commitment of its civil service. Also, there is the consideration of the unemployment rate in Nigeria. As of 2020, the civil service accounts for 2.12 million jobs, while more than 720,000 civil servants work “officially” for the FG. The unemployment rate is set to rise to 41% in 2023. If the civil service is downsized, that will exponentially affect the unemployment rate, increasing people's pain further.

Given the aforesaid points, I am looking forward to the next stage of play by the BAT team on palliative handouts or transfer payments while monitoring other policy introductions in the coming weeks. It is also worthy of note that President Tinubu is still in the formative months of his administration, so we are watching his next steps as we plan for the future.

If everything is managed well, we expect to be better as a nation coming out of this, and it is meant to last for a shorter time.

I would love to hear from you!?Write about your thoughts about the topic and what your favourite candidate could have done differently in the situation I described above.