The recent remark by International Monetary Fund (IMF) President, Christine Lagarde, that Nigeria does not need external borrowing to fund this year’s fiscal programmes appears a double-edged sword, writes Correspondent, SAM NWOKORO.
President Buhari’s N6 trillion stimulus budget is still swimming in seemingly endless criticism. Its mammoth size and ambitious targets have not seized to provoke various comments from both conventional economists and neo-liberal promoters of free enterprise system. Coming from a leader most feared is yet far from mainstream liberals, quite unlike his predecessors who made no pretences about their ideological leanings, President Muhammadu Buhari has not pretended that he is not so much fascinated by extreme free market. Even before he won election, his party, the All Progressives Congress (APC), judging by its promised economic management plans and public programmes, Buhari has most times complained that the liberal economic policies of his predecessors had created an uncomfortable gap between the haves and those living on less than the $2 a day.
It did not surprise Nigerians that the 2016 budget was piled with a huge dose of welfare programmes that will be funded at the behest of the tax-payer. Aptly dubbed a stimulus or expansionary budget, the budget sought to curtail the pump price of petrol, but falls halfway, settling for something between open market and government-regulated price. There is hope that in the long run, an equilibrium pump price would emerge and stabilise before the government-owned refineries resume production at full capacity, any time from late March. So it did not want to incur the political unrest and blunder of outright announcement of the cancellation of petrol subsidy, though it knew its gambit would not guarantee much in product availability regularly and enduring stable price.
Not just that, the plan went unpretentiously against the traditional expectations of Bretton Woods philosophies.
Nigeria’s unpalatable exchange rate volatility and oil price plunge that have been running in the last three years, coupled with the fact that the president and his management team have not actually done the cost-cutting he said he would do to raise enough fund domestically to fund the ‘ambitious’ budget. For one, members of the National Assembly are still collecting jumbo pay. Of course, the little cuts they did in their emoluments obviously have not impressed the general public. It is like the public and even the government’s international partners are miffed that the Buhari government has not gone far enough in the promised cost cutting he and his party had often advertised, especially from political office holders.
How the budget conflicts with Bretton Woods
Most economists have criticised the Buhari budget for its “exaggerated optimism”. From the onset, even the outgone government of President Goodluck Jonathan expressed worry that the incoming government would much likely “set us back before moving us forward”, implying that the Buhari government would disorganise all the time-bound economic plans it laid down before leaving office.
Not surprisingly, the APC, which produced the president, did not waste time after he was sworn in to draft economic manifestoes for him padded with politically motivated fiscal plans tailored to impress the people without adequate projections and calculations about income and expenditure profiles.
According to an economist, Dr. Gregory Onwukwe, “Buhari’s budget of N6 trillion reads well on paper, but it is practically difficult, if not impossible, to implement. It reads much like the old Awo’s welfarist agenda of free this and free that of the 1950s and 1960s. However, things are not like before and the texture and nature of international politics and economics have changed. Nowhere again is any government offering free feeding and unemployment allowance. Even United States and Japan, the richest economies in the world, are no longer doing it. Or if any such model exists, it can only be in another form, but not outright spreading of borrowed funds in the name of unemployment benefit. Who and who are you going to pay. And where is the fund for it in the first place.”
He also asked whether government is going to over-tax local businesses in order to raise the money to fund the deficit “or are you going to cause social and political turmoil by commanding people not to ask for their wages because you want to fund deficit?”
Another development expert, Akpan Ekpo, a professor of Economics and Director of West African Institute for Financial and Economic Management (WAIFEM), had also warned after the budget was read: “If government wants to borrow, it should be to finance capital projects and not recurrent expenditure. The budget is about N6 trillion and they would borrow around N1.84 trillion from external and domestic sources to fill that deficit. The issue is not about borrowing, but borrowing wisely and whether we can pay the debts. Over the years, we have been borrowing. Gross Domestic Product (GDP) does not pay debt. So we cannot say because debt to GDP ratio is about 14 per cent, within acceptable benchmark, therefore we would just be borrowing.”
One of the earliest and biting criticisms of the 2016 fiscal plan came from the opposition Peoples Democratic Party (PDP). Its Publicity Secretary Olisa Metuh, who is now in detention for taking part in Dasukigate, addressed journalists shortly after the budget presentation where he said: “With the budget, Nigeria is going the way of Greece.
“The breakdown of the budget showed that Nigeria would be borrowing N5 billion a day for the next 365 days starting from January 1, 2016 without corresponding provision for economic production and a clear repayment plan, a scenario that spells doom for the future of the nation.”
He had also explained that: “Some people may be wondering why we raised an alarm about the budget. The reason is simple. When we analysed the budget, we discovered it is a misshapen attempt at a Keynesian economics of applying deficit spending to stimulate growth, even when studies have proven that GDP growth rates decrease by over 50 per cent when debt goes from low or moderate to high. But then we know the borrowing here is to pay huge campaign debt and fund a political war chest.”
In another case, the National President, Constance Shareholders Association of Nigeria, Shehu Mallam Mikail, explained: “The proposal of N6 trillion was based on government’s estimation, but would not prevent Nigeria’s economy from sliding into a recession as previously predicted, unless government acts urgently to strengthen the financial system in order to curtail misappropriation of public funds allocated to developmental purposes.”
There is the belief that the IMF chief had noted all these before departing Nigeria, and virtually mocked the Nigerian press and public by stating: “Nigeria does not need to borrow money to fund the budget.”
As if to confirm the mockery, she even told Nigerians and Buhari’s management team that IMF team would be coming after her “for a close study of the budget”. Just few days after her departure, talks about missing copies of the budget started flying about with allegations between Presidency and the Senate that two copies had emerged and one was missing or the whereabouts unknown.
Implications
There is a popular belief that IMF may not be able to aid Nigeria’s borrowing efforts to balance the budget, given the budget’s lack of certainty in meeting up repayment scheduled, especially when Nigeria has already accumulated much debt. Besides poor infrastructure, other challenges still stare local businesses in the face amid falling oil prices.
Notwithstanding, not much progress has been made in the area of loot recovery. Thus IMF institutions may think that the Buhari regime is likely to frustrate their economic model for the world’s developing economies.
