Wanted: The Best Economic Manager - ThisDay Newspaper Editorial Special

Yesterday, Thisday News had an election special by the Editorial Board. I contributed the piece below titled “Wanted: The Best Economic Manager”. I'd love to hear your thoughts on the matter.

With the extreme difficulties currently being experienced due to the cash shortage crisis, it is easy to lose sight of the fact that our economy was already in a precarious position and that the present pain is likely to have more long-lasting and far-reaching negative impact than first considered. The approved 2023 budget spoke volumes to us if we were willing to listen. It clearly stated that though the revenues expected by the federal government was only N10.4 trillion, the plan is to spend N21.8 trillion in the year. Essentially, the forecasted budget deficit exceeds the anticipated revenues. Meanwhile, for over 10 years Nigeria’s governments have failed to achieve forecast revenues and, especially with the current cash and fuel crises, there is no reason to believe 2023 will be different.

I often hear the argument that many governments, including those in the developed world, run on budget deficits and Nigeria’s deficit to GDP ratio is within reasonable limits. Such a premise ignores the fact that the structure of the country’s economy is atypical. The federal government’s revenue as a proportion of GDP is extremely low whilst its debt to revenue ratio is high. In 2020, Nigeria’s tax-to-GDP ratio was 5.5% compared to an average of 16% for 31 other African countries. Furthermore, Nigeria has relatively high interest rates on both local and foreign debts, and a weakening currency which increases the Naira equivalent of foreign borrowings. Therefore, what is most pertinent is the government’s ability to fund the budget deficits and service the resultant increasing debt.

To put this in context, 60% of 2023’s forecast revenues is expected to be spent on debt service alone. In fact, the amount allocated to only fuel subsidy and debt service for the first half of the year is 124% of the expected revenue for the period. So how do we plan to fund 2023 deficit? Borrow more!

There is, however, a new challenge to that plan. Moody’s recently issued the country a ratings downgrade. Consequently, borrowing will become more difficult and expensive. At best, the government’s borrowing plans will crowd out that of the private sector, making it more challenging and costly for the latter to access capital. The timing is most unfortunate as the next government looks to the private sector to drive much-needed economic growth to generate greater tax revenues, create jobs, reduce poverty, and decrease the stimulus for security challenges.

As things stand, the government may be forced to once again turn to the Central Bank to fund its deficit; a move that could further destabilise the economy. The government is still in the process of finalising the restructuring of the existing N23.7 trillion ways and means facility (essentially an overdraft) from CBN, an amount that exceeded the legal borrowing limit from the apex bank.??

We should all be concerned that Nigeria seems to be heading into a debt spiral, a path that has led to disastrous consequences in other countries. What for some may seem like “the government’s problem” could well become a headache for us all. Take for example Ghana which is currently facing a debt crisis due to a rapid increase in its debt-to-GDP ratio over the past few years. This has been caused by several factors, including excessive borrowing to fund campaign promises and rising interest rates, resulting in persistent fiscal deficits. The government has also faced challenges in managing its currency, leading to inflationary pressures and a depreciating Cedi.

Returning to the topic of the current cash shortage, CBN had targeted to raise the financial inclusion rate from 53.7% in 2010 to 80% by 2020. Though some progress was made over the decade, the actual attainment was 64% and a new target of 75% by 2024 was set. Sadly, due to the serious mistrust that has entered the current financial system because of bank customers’ inability to withdraw their funds as and when required, the expectation is that many will revert to keeping their money outside the formal financial system. Furthermore, the drive towards a cashless society has been impeded by the failure of the digital platforms to cope with the surge in demand for their services and the widespread pain that has caused.

As of 2015, the informal sector represented 41.4% of the country’s GDP. A large proportion of micro and small enterprises are dependent on daily cash inflows to meet their personal and business day to day expenses. Without the pre-existing digital structures and with the significant drop in cash available in the system, business activity has been grounded for many. Soon enough, economists will be able to quantify with more accuracy the toll this currency crisis has taken on an economy that was barely growing faster than its population. Especially considering the drag already caused by the prolonged period of fuel shortages across the country.

As the Nigerian presidential candidates battle it out at the polls, one does wonder the extent to which they have a good grasp of the real war they are looking to inherit. More than ever before, the winner of this election will truly have his work cut out for him. More importantly, however, as we (the voters) head to the polls to make our selection, it is critical that we do so with a heightened sense of responsibility. This is not business as usual. We must ensure that we are making decisions informed not by our religious, tribal, party or pocket affiliations but based on who, in our considered assessment, not only understands the economic challenges facing the nation but can also effectively lead the country through these trying times.

Our next president, together with his selected team, must be able to successfully navigate the economic land mines highlighted above, as well as address the issues of the popular but unaffordable fuel subsidies, unjustifiable foreign exchange subsidies, and high inflation, to name a few. This will have to be done in the context of continuing global headwinds with the Russia-Ukraine war showing no signs of abating and climate change driving the move away from fossil fuels upon which our economy has been dependent, etc.

One dares not contemplate what could be the possible outcomes were we to choose a president that lacks an understanding of the gravity of what we are facing and implementable ideas to redress the situation. As I consider who I think would be best placed to lead Nigeria come May, there are three key factors I am assessing: Technical capacity, political will and the ability to implement. Nigeria’s next president needs to not only have a good grasp of the issues the country faces but also the intellectual capacity to proffer and/or understand implementable solutions. Such capacity comes from a mix of intellect, education, and experience. What we currently face is too complex to “manage”, as we often do.

We have all seen many cases where those in positions of influence have the required technical capacity but have insufficient political will to do what is necessary. The lack of political will stems from multiple places but it generally all boils down to one word, “interests”; be it personal and/or political party. I have come to understand that when a government decision seems to make no sense to me, it is usually because they are solving for something different to what I had in mind. Electing political leaders who truly care about Nigeria and its people and therefore desire to do well by them will be a true game-changer for the fortunes of this nation.

However, even when the first two attributes are in place, many simply lack the skill to implement. Often, the policies, plans, and programmes required to move Nigeria forward necessitates going up against entrenched interests. Many lack the courage and/or political dexterity to do so. It becomes even more difficult without (reasonably) “clean hands”.

It’s easy though to sit on the sidelines and opine on what is required of our political leaders. Equally important is that we, the citizens, understand what is required of us to ensure we get the political leadership we desire. Each one of us must recognise and diligently exercise our responsibility to not only vote but to do so wisely. If not for us, then for our children. We the electorate have a say regarding the direction our country heads once every four years. We cannot afford our politicians to fail us; but worse than that, we cannot afford to fail ourselves.