An economic expert, Dr Tajudeen Adebayo, has said that despite the grim outlook of Nigeria’s economy as a result of huge budget deficit, the Federal Government would get out of the woods by simply working on the area of accountability and corruption.
He said the onus is on the Federal Government in the area of accountability, corruption-free and strong commitment in revenue generation, blocking leakages of resources and eradicating waste in public expenditure.
Adebayo stated this during a review of the 2021 Federal Government budget organized by the Abeokuta Business School of the Crescent University, Abeokuta on Tuesday.
The don said, “All hope is not lost however, as budget deficit is not always harmful. It can be beneficial to Nigeria, depending on quite a few factors:
“Theoretically, the Keynesian analysis holds that a budget deficit can be good for an economy in recession (like we are at the moment) because private sector spending will be low, while savings will rise on the aggregate!
“Empirically also, financing the budget deficit can be cheaper for the government because the private sector will prefer buying government securities or bonds, which is safer than investing in the private sector with uncertainties (that caste shadow presently on global economic space)!
“Invariably, this will make the cost of borrowing lower for the government to finance the deficit (as the increased patronage of government bonds by private investors ultimately, brings down the bonds’ yields). As a way out therefore, the FG can borrow safely from the private sector to finance the 2021 budget deficit.”
The scholar, however, highlighted the areas of concern about the year’s financial estimate.
“While revenue generation remains a challenge in the face of falling oil prices and economic contraction resulting mainly from COVID-19 pandemic induced global business uncertainties, the key concerns on the 2021 budget include: The growing debt profile of Nigeria as a result of the projected budget deficit of N5.602 trillion to be financed mainly, through borrowing yet again!
“Diversifying the economy from its over-dependence on crude oil export and its price volatility in international oil market; increasing the revenue generation from all government MDAs and addressing revenue leakages in government finances;
“Meeting the daily volume of crude oil production of 1.86 million (bpd); controlling the growing recurrent spending on payment of salaries and overheads.
“There is therefore, genuine fear that the deficit financing in the coming 2021 fiscal year may: further exacerbate Nigeria’s already poor debt profile; force governments into adapting policies aimed at austerity; can lead to widening inflationary gap in the economy that may adversely increase money supply; lead to a fall in aggregate demand, lower growth, trigger recession and unemployment.”
While addressing divergence of opinion between the International Monetary Fund and the National Bureau of Statistics on the growth of the economy, Adebayo said NBS’ projection was more probable.
“The IMF projected a low growth of +1.7% for Nigeria in 2021 due to Nigeria’s overdependence on oil revenue and the global crash in price of crude oil on revenue generation; covid-19 induced decline in real income that was as deep as -6.1% in the Q2 2020; and, the unavoidable uncertainty casted on global and domestic investment climate; the risen national debt which in relation to GDP, has continued to grow unabated from 20.33% in 2015 to 34.98% in 2020 (see Table 5 below); Insecurity issues that threaten Nigeria’s economic growth.
“In spite of the above reasons however, the NBS projection of +3.0% for Nigeria may still appear more reflective of the expected economic reality in the 2021 fiscal years due to: impressive performance of the economy, which considerably grew from its decline level of -6.1% in the Q2 2020, to -3.62% in the Q3 2020 (an improvement of 2.48% points over its Q2 level).
“The general optimistic outlook and expected performance of the global and regional economies in IMF’s growth forecasts ranging from +3.0% (for Egypt) and +6.0% (for the EMDC to which Nigeria is a prominent member), is also a good sign of reliability on NBS position; while at the same time, the IMF’s projected growth for advanced economies stands at –5.8% in 2020 & + 3.9% in 2021, its projections for the ‘Low-income developing countries’ shows expected contraction to a dip of -1.2% in 2020, and a later growth by 4.9% in 2021. This may also, increase the confidence in NBS forecast of +3.0% growth for Nigeria in 2021.
“Therefore, all things being equal, growth expectation on Nigerian economy for the 2021 cannot be too different from the quoted estimate of +3.0% by the NBS, except there are more convincing explanations than the obvious.”
He advised the Federal Government to be committed to the strict implementation of the budget for the economy to grow.
“The 2021 Budget, cautiously labelled “The Budget of Recovery and Resilience”, is rightly premised on the ravaging effects of COVID-19. Assumptions for 2021 budget include a realistic $40 per barrel, oil production at 1.86m barrels per day, the exchange rate of N379 to US$ and an ambitious growth rate of 3% in the face of a total projected expenditure of N13.588tn, a revenue target of N7.986tn which leads to a deficit of N5.602tn.
“From the architects of the budget therefore, the budget is to provide a clear road map for Nigeria’s post-Coronavirus economic recovery through economic diversification process into the non-oil sector, prudent management of the oil sector, enhanced competitiveness and social inclusion. For these, a healthy revenue generation and expenditure frameworks are highly needed by the FG with about N7.986 trillion projected revenues to be realized in funding over N13.6 billion expected spending in the 2021 budget.
“Therefore, for us at ABS, we deem it highly expedient to recommend to the FG that more than ever before, the government needs to consider the followings: Strengthening the frameworks for greater transparency and accountability at all FG’s revenue collection and expenditure management points and in all processes;
“Publishing the overall rules for the various license award processes in Nigeria; intensifying efforts to make significant gains in 2021 fiscal year from those sources including its special accounts, special levies account, domestic fines, asset recoveries, stamp duty, signature bonus, and receipt from the auction of oil licenses;
“Block all known avenues for revenue leakages in all the 60 GOEs and MDAs; increasing public private partnerships through well prepared projects involving MDAs, the Infrastructure Concession Regulatory Commission and the private sector.
“Reduce borrowing, establish special purpose vehicles that gather and aggregate resources from a plethora of sources including institutional and retail investors to fund priority capital projects.
“Stop project abandonment and maintain the culture of keeping proper stock of the national wealth by focusing more on the completion of as many ongoing projects as possible in the 2021 fiscal year, rather than commencement of new projects without well-established necessities.
“It is also recommended that the FG should implement all the lofty objectives stated in tax policies: pushing for amendment of key tax legislations, financial reporting and other fiscal rules for companies operating in the Free Trade Zones, tax exemptions, incentives & rebates to businesses to achieve socio-economic development;
“Stop the subsidy payment to fully deregulate the downstream sector and drive investment to the sector; FG should ensure service reflective electricity tariffs to help resolve liquidity crisis in the power sector and also, find the lasting solution to estimated billing corruption-prone practices in the sector.”
A good analysis. This to some extent slays the fears raised about the over borrowing by the government as well as the performance of the economy.
This is an import contribution to national development coming from the Abeokuta Business School . We appreciate your suggestions and hope that the government will implement the suggestions .