For the purposes of context, the Buhari Administration inherited a government whose sources of foreign exchange earnings consisted to a large degree from revenue from Oil sales. The price of oil has fallen from $114 to $32 as at the time of writing. He also inherited a FG financial position of high expenditure, relatively high debt accumulation, high debt service burden (due, for the most part, to his predecessor’s reckless accumulation of debt), a corrupt civil service bureaucracy of its revenue generating arms (like the customs service) where staff rips off the FG for individual gain and the where staff (without authorization) hires subordinate staff without FG approval. The debt that was sanctioned by NASS was diverted by the previous government into private pockets for the purposes of winning elections. It still has the Boko Haram insurgency to handle. That, thankfully, is being handled very well.
It cannot be denied that President Buhari inherited a very difficult set of circumstances in relation to the FG finances. He however inherited a very strong Nigerian economy even if he inherited a very weak FG revenue situation. In 1980, Nigeria had the 30th largest GDP in the world. In 1990 it had the 40th largest GDP in the world. In 2000, it had the 48th largest GDP in the world. By 2011, it had the 29th largest GDP in the world. An significantly improved global economic position. By 2014, it had the 21st largest GDP in the world. Last year, is the first time in 16 years where Nigeria’s GDP position fell from 21st to 23rd largest in the world.
President Buhari had been running for president for the better part of 13 years. He spent his first 6 months running a government with Permanent secretaries as his chief advisers and surrogate ministers. When he finally appointed ministers, he sacked all permanent secretaries that had worked with him up to that point before he allocated ministries to the newly appointed ministers. Both the newly appointed ministers and the newly appointed permanent secretaries are devoid of badly needed institutional knowledge. All institutional knowledge now reside in the Presidency.
At a time of major economic challenges to the Nigerian economy, President Buhari has removed macro fiscal policy from the finance ministry and given it to the ministry of budget and national planning headed by a lawyer, former senator and prolific board room member of many of Nigeria’s major corporate entities. Fiscal policy is the macro economic tool used by government to stimulate or deflate the economy depending on the issues affecting the Nigerian economy at the current time. Fiscal policy includes manipulating government spending and government taxation in order to stimulate growth or reduce the over heating of the economy. Usually, fiscal policy is used in conjunction with monetary policy.
In Nigeria’s case, we have, at a glance, the coalescing of misplaced and ill-thought out fiscal and monetary policy being applied to the Nigerian economy. The ailment Nigeria currently faces is to avoid a situation where a FG revenue challenge becomes a wider Nigerian economic challenge. The CBN (through its ill-advised Forex policy) is single handedly sending many companies into bankruptcy. It is also reducing the inflow of vital foreign currency related foreign direct investment (“FDI”) and foreign investment into the stock market (which in turn forces companies to finance their operations through bank debt related financing at high interest rate costs). Added to this, the CBN has failed to bring interest rates down to rational levels needed to stimulate economic demand and investment within Nigeria. The fiscal side of economic management has seen the Buhari government aim to increase VAT taxation (which contracts as opposed to stimulating economic growth). The timing of the implementation of the TSA policy starved the banks (and by implication the wider economy) of badly needed liquidity. At the very least, the TSA policy should have been implemented at the time when the FG was implementing its Keynesian style budget. That would have avoided the contractionary effects of the TSA policy. Up to this point, the fiscal and monetary policies currently being administered to the economy is going to lead Nigeria to a significant economic contraction (much of which could have been avoided). Much of the blame for that will be placed firmly at the footsteps of Buhari and Emefiele.
On the flip side, the government (should its budget be approved) has opted to inject major financial stimulus into the Nigerian economy through its massive spending agenda to be financed by massive borrowing. The FG wants to spend more than it receives. It is currently spending 35% of its revenue on debt servicing. That was inherited from the incompetent managers of the economy under the Jonathan Government. However, the Buhari government aims to finance its budget by borrowing $5 billion dollars from foreign sources and major borrowings from domestic sources. It also aims to get a greater proportion of its revenue from taxes on corporations. Very few foreign investors will lend money to this government at rates that was achieved in recent years. It is now a very high risk debtor in my view. The oil revenue will come under greater downward pressure in the near term due to weak global demand for and stronger supply of oil on the world market. I doubt that the FG will even get as much revenue from taxes as a lot of companies would have gone bankrupt by the time the full effect of the combined fiscal and monetary policies currently being applied takes full effect. Even taxes paid by employees will decrease as more people will become unemployed. Consequently, the debt service burden of the FG will increase significantly to near unsustainable levels. We would have come full circle to Nigeria of 1999.
As a character trait, President Buhari is said to be strong willed. That works well in his areas of strength. Those areas are in matters of security and the fight against corruption. His fight against Boko Haram is yielding results. His anti-corruption drive (especially his recent treaty signed with the UAE) is moving in an impressive direction. On matters of economic management, his character traits are a national security risk to Nigeria. He clearly does not understand macro economics and his judgment on that vital issue is severely lacking. He needs to appoint a special adviser on the economy (and very soon). That adviser should have strong macro monetary and fiscal experience. That person should have a strong personality and be willing to give objective advicce and to help him monitor and sift through the advice President Buhari is getting from Emefiele, Udoma and Adeosun. Additionally, policies emanating from the CBN, finance and Budget and National Planning ministries has to be thoroughly debated by all and sundry (with such adviser present and actively participating) in order to ensure that the general direction of fiscal and monetary policy actually works to stimulate the Nigerian economy.
The financial times recently criticized Nigeria’s forex policy and the NSE driven circuit breaker policies as being “foolish”. In fairness to President Buhari, the CBN driven forex policy was commenced in February of last year (before Buhari was sworn in). The NSE is a private institution. Whilst the NSE is overseen by the SEC, that policy position of the NSE cannot be attributed to Buhari. Both CBN and the NSE are headed by people appointed during Jonathan’s presidency and such heads are independent of him (in so far as the law is concerned).
The Shagari led government started Nigeria’s economic collapse (which the regimes of Buhari, IBB, Sonekan, Abacha and Adulsalam entrenched). Nigeria, in 1999, was in the throes of massive poverty. The OBJ, Yar Adua and Jonathan led governments grew the Nigerian economy impressively for 16 years (even if the Jonathan government wrecked FG finances and buffers significantly in that time). The Buhari Government (if not pressured and fast) is set to give Nigerians a crash course in how the North became a poster child for massive poverty. Only this time, Buhari would have successfully spread poverty to all sectors and parts of Nigeria.
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