National debt
is an emotive issue, as well as an economic one. The thought of saddling future
generations with unserviceable debt, is not conscionable and certainly not part
of the President Muhammadu Buhari-led-administration’s agenda. It is therefore,
worthy of an intervention on my part to explain the history, the short-term
strategy and the medium to long term outlook for our economy.
It bears
repeating that anyone who thought that the Nigerian economy we inherited in
2015 was in need of minor adjustment was sadly deluded. Oil prices had plunged
from a height of over US$120 to a low of US$28 per barrel, yet the country had
foreign exchange reserves of US$28.34 billion (having declined by US$16 billion
in the two years to June 2015 from a high of US$44.95 billion). Despite just 10
percent of the budget allocated to capital expenditure, debt had (in a period
of unprecedented oil earnings) inexplicably risen from N7.9 trillion in June
2013 to N12.1 trillion in June 2015. Depending on the candour of the
commentator, the outlook was at best, ‘challenging’ and at worst, ‘bleak’.
However, this
administration set to work, with a vision, not just to return Nigeria to a
stable economic footing, but to deliver a fundamental structural change to the
economy that would reduce our exposure to crude oil. We approached this with a
number of binding constraints that must be understood. One of these was that
mass public sector retrenchments to create room for capital spending was not an
option. Politically, it offended the principles of the All Progressives
Congress (APC) and economically, it would worsen an already precarious economic
situation and cause untold hardship. In light of this, an expansionary fiscal
policy was adopted with an enlarged budget which would be funded in the short
term, by borrowing.
As the
economy recovered and returned to growth, borrowings would be systematically
replaced by revenue, which is the fundamental missing piece in Nigeria’s
economic jigsaw. This does not mean that we would ignore waste, which has been
a core focus of our efforts. Through the implementation of the Efficiency Unit
and enrolment of Ministries, Departments and Agencies (MDAs) on the Integrated
Payroll and Personnel Information System (IPPIS), we have successfully saved
N206 billion in payroll costs using technology to drive the cleansing process,
with the removal of 54,000 fraudulent or erroneous entries. This was attained
without the negative social impact of retrenchment.
As we put our plans together, our economic modelling team correctly forecast
that in the short term, there would be an acceleration in the accumulation of
debt and an increase in debt servicing costs. However, this would be
ameliorated by correcting the low tax to Gross Domestic Product (GDP) ratio
through revenue mobilisation, releasing funds to sustain investment in capital
and repaying the debt. Mobilising revenue aggressively is not advisable, nor
indeed possible, in a recessed economy but as Nigeria now reverts to growth,
our revenue strategy will be accelerated. This is being complimented by a
medium-term debt strategy that is focusing more on external borrowings to avoid
crowding out the private sector. This would also reduce the cost of debt
servicing and shift the balance of our debt portfolio from short term to longer
term instruments.
The subject
of inherited debt must also be drawn firmly into the mainstream of this
discourse. Analysts will recall that in July 2017, the Federal Executive
Council (FEC), approved that N2.7 trillion of hidden liabilities would need to
be addressed. These obligations include salaries, pensions, oil importation,
energy bills and contractor payments, some of which date back to 2006. It is
instructive to note that the recent Academic Staff Union of Universities (ASUU)
strike, that crippled our tertiary institutions, is one of many examples of
commitments made by previous administrations that were saddled on this team.
ASUU’s dispute relates to an agreement reached with the federal government in
2013 (when oil prices fluctuated between US$102 and US$116 per barrel), which
was not honoured. On a daily basis, previously undisclosed obligations are
uncovered. The most recent of which relates to oil importation in 2014 and is
currently being dimensioned – unpaid and secured by a hitherto undisclosed
sovereign note. All of these, while declared public debt was increasing by N5
trillion in two years despite records highs in revenues (in relative terms)
from oil sales.
This
administration believes that Nigerians have a right to the truth. The figures
recently released by the Debt Management Office (DMO) and much debated
indicates that while total public debt in dollar terms has remained relatively stable
since 2015, our debt, when denominated in naira, has increased from N12.1
trillion to N19.6 trillion. However, this belies the impact of the recent
devaluation of the naira on the external obligations we inherited, which
accounted for N1.63 trillion of this increase. Also, to be considered, is the
effect of the compounding of debt service on the inherited domestic debt, which
was largely short dated. The administration has always been transparent and the
reward for transparency should not be consternation but rather, patient and
informed analysis. Nigeria’s debt to GDP currently stands at 17.76 percent and
compares favourably to all its peers.
This administration will continue to pursue a prudent debt strategy, tied to
gross capital formation. This will be attained by driving capital expenditure
in our ailing infrastructure which will in turn, unlock productivity and create
the much-needed jobs. We accept that in the short term, there will be
dislocations as our revenue efforts will, by definition, lag both our
expenditure and debt obligations, creating a fiscal deficit. This will be
particularly pronounced in the preliminary years of pursuing this strategy;
however the dislocation will be mitigated by the nation’s response to the
revenue effort. No economy, anywhere in the world, can deliver sustainable
long-term growth, without volatility if tax revenue is at 6 percent of GDP.
This must be addressed. It is not optional and the true risk to future
generations of Nigerians is that they grow up in an environment where tax
avoidance or evasion is viewed as acceptable. We are already seeing some
performance improvement in our non-oil revenues. Particularly, year to date
performance of Customs Revenue, Value Added Tax (VAT) and Companies Income Tax
(CIT), is 19 percent (N408.06 from N342.79 billion), 18 percent (N634.89 from
N539.46 billion) and 11 percent (N838.45 from N757.40 billion) higher
respectively, when compared to the same period in 2016. This does not mean that
we have succeeded. Revenue remains considerably short of our ambitions and must
be increased exponentially over the coming years but it is a sign that it can
be done.
It must be
recalled that the President Muhammadu Buhari-led administration has expended
more on capital projects than any previous one, despite tight fiscal
conditions. Our focus on capital is important as it will underpin our medium
and long term needs so the impact may not be immediately felt. But there are
early and encouraging signs; major construction will resume on twenty-five
roads across the key road networks/sections (A1-A4), which cuts across the six
geopolitical zones, following the successful raising of over N100 billion under
the Sukuk debt issuance programme. Our capital releases to Power, Works and
Housing in 2016, is estimated to have created 193,469 jobs, with 40,429 being
direct jobs and 153,040 indirect jobs. The many thousands of staff of some of
our major contractors, who had been furloughed since their last payment
receipts in 2014, will attest to the impact of government policy. In
agriculture, our policies on rice and fertiliser have seen the resurrection of
many rice mills and blending plants and have created a new value chain in
industries that were previously import driven with over 300,000 farmers fully
engaged.
It must also
be recalled that this administration is working harder on revenue generation
than ever before. Blocking leakages, demanding efficiency and even breaching previous
‘no-go’ areas like tax compliance for our higher earners, as there are no
sacred cows. All these efforts are aimed at ensuring that Nigeria has an
economy that distributes wealth and opportunity fairly among her citizens. This
commitment to equity should equally provide assurance that we will never burden
future generations with the responsibility for paying for past mistakes;
rather, we will bequeath a vibrant and reformed economy. We are resolutely
convinced, based on empirical data that our collective efforts will deliver a
Nigeria that works for all Nigerians and in all global economic conditions.
Kemi Adeosun is the Nigerian
minister of Finance.
