NIGERIA staggered into 2023, tossed hither and thither by billowing security, social and economic storms. Ominously, most indicators signpost a tumultuous economic experience ahead that taken together with other trending existential threats could trigger its long-feared implosion. From all angles, the economy is eliciting adverse statistics and expert projections range from very gloomy to alarming. Poverty and joblessness are deepening, while the federal and state governments, amid the rubble, carry on languidly with tired policies and fiscal recklessness.
Local and foreign observers fret. Some fear that without drastic action by the clueless political leadership or uncommon luck, the economy could crash with unpredictable consequences for the fragile union. Unfortunately, the politicians are focused single-mindedly on the coming elections starting in February and are ignoring or downplaying the enormity of the gathering economic storms. They do so at Nigeria’s peril and its future as a viable state.
The World Bank and IMF warn that Nigeria could go bankrupt, while the UN Food and Agriculture Organisation predicts hunger in several states. International agencies have reviewed the country’s 2023 GDP growth forecast downwards from 3.0 per cent to 1.7 per cent. These are chilling omens for a country that requires sustained double-digit growth to reverse rising poverty and unemployment.
The N21.83 trillion 2023 national budget that the President, Major General Muhammadu Buhari (retd.), just signed is incoherent. Apart from the in-built deficit of over 50 per cent of the total, the National Assembly, as usual, irresponsibly added N1.3 trillion to the initial proposal, with no regard to how their quirky padding would be funded. This raised the record N10.78 trillion deficit that was already 4.78 per cent of GDP and exceeded expected revenue of N9.73 trillion by 11 per cent, to N11.34 trillion.
Over 60 per cent of the budget is to be spent on debt servicing and recurrent expenses. A request by Buhari to securitise the N23.7 trillion it has taken from the Central Bank of Nigeria has been stalled at the parliament. Should the NASS reject the request, an additional N1.8 trillion would be spent on interest payment from the sickly budget. If eventually approved (a more likely outcome from the rubber-stamp parliament), Nigerians will be saddled with more debt repayment obligations in the decades ahead.
Buhari has not only impoverished Nigerians; he has dragged the country into a mountainous debt trap. The Debt Management Office disclosed that his successor would inherit a debt burden of at least N77 trillion. This year’s budget envisages borrowings of N10.77 trillion. Buhari’s appetite for debts is spectacular. Inheriting a total debt of N12.11 trillion in June 2015 of which N2.03 trillion ($10.31 billion) was external debt, total debt by December 2022 had reached N44.06 trillion of which N17.14 trillion ($39.66 billion) is external debt. The N23 trillion obtained through the notorious ‘Ways and Means’ will bring it up to N77 trillion. Between 2016 and 2023, deficit budget financing rose cumulatively to N47.43 trillion or 370.54 per cent, from N2.41 trillion in 2016 to N11.34 trillion this year.
The alarm bells have been ringing louder over the unsustainability of the debts. The government has been spending about 90 per cent of all revenue servicing debts. The IMF said this could reach 111 per cent this year. Its call since July last year that Nigeria restructures its debt is acutely ominous. Recently, all three major global rating agencies – Fitch, Moody’s, and Standard & Poor’s, downgraded the country’s credit rating. Outright default or restructuring would make borrowing more costly and put the country at the risk of being pressured to accept the IMF’s structural adjustment plan, a poison pill for a disarticulated economy and that is irredeemably corrupt, wracked by insecurity and lacking in strong institutions that can withstand cataclysmic shocks.
Data from the CBN showed that foreign reserves fell by $3.42 billion to $37.1 billion by December 2022 compared to $40.52 billion in December 2021. Significantly, the dip is attributable mainly to its constant drawdown to “defend the naira,” which fell by 5.7 per cent at the official Importers and Exporters window, and by 23.1 per cent at the (more realistic) parallel market during 2022.
The volatile exchange rate and shortage of forex have been devastating, fuelling inflation, which rose steadily in the 10 straight months to November to 21.47 per cent, crippled businesses and sent foreign investors scurrying out of the country. Compared to the emerging markets and developing economies’ average of 10.6 per cent and 8.8 per cent global average, this raises much concern.
The National Bureau of Statistics reports that foreign investments (direct, portfolio and others) declined by 81.4 per cent between the first quarter of 2019 and the Q1 2022 to $1.57 billion. The CBN said FDI declined by $1.59 billion in Q2 2022. Nigeria continues to trail South Africa and Egypt in Africa despite its larger GDP.
Unemployment at 33.3 per cent is forecast to rise this year to over 35 per cent. Youth unemployment stands at 53 per cent; it was barely 10 per cent when Buhari assumed office. Trading Economics forecasts this to reach 58 per cent this year.
Clearly, the economy is headed for trouble from internal and external pressures. Internally, corruption, weak institutions, waste, and extremely poor governance have degraded the economy and failed to leverage the country’s immense material and human potential. Many Nigerians face hunger as 133 million or 63 per cent of the population are said to multidimensionally poor. The International Labour Organisation insists that even those employed hardly fare better; it said only 17 per cent of Nigerian workers earned enough in 2022 to avoid poverty; 35 per cent of them became “extremely poor,” 31 per cent “moderately poor,” and 23 per cent “near poor.”
The drastic essential policy measures that should be adopted and strictly implemented–liberalisation and privatisation especially–have been sidestepped. Executive orders taken to improve the ease of doing business have been too little and therefore not made major impact. These enabled the country to improve its ranking on the 2020 Ease of Doing Business Report to 131 from 165 in 2019. It is not enough. UNCTAD says “widespread corruption, political instability, lack of transparency, insecurity, intense bureaucracy, and poor infrastructure are limiting the country’s FDI potential.”
An analysis in The Conversation identifies lack of diversification, the saving-investment gap, and poor revenue generation, especially foreign exchange earnings to pay for imports as severe constraints to Nigeria’s economic growth. These require robust policy initiatives by the federal and state governments to attract investments, block the massive revenue leakages and drastically reduce the size and cost of governance. The last is unlikely in an election year but is unavoidable.
There should be greater fealty to fiscal discipline in Nigeria’s public sector. Over 60 federal agencies persistently fail to remit revenue generated in defiance of the law. A report by the Senate in May 2021 that these bodies failed to remit over N3 trillion to the treasury between 2014 and 2020 has not resulted in collection and sanctions. For decades, cartels, officials and security personnel have been stealing over 400,000 barrels of crude oil per day without determined efforts to stop them. The recent flurry of “discovering” illegal pipelines after the controversial award of a security contract to a private firm is belated.
The corruption-driven forex market must be reformed. Along with the energy crises, manufacturers blamed the riotous multiple foreign exchange rate market for the shutdown of over 50 companies in the last five years. The power sector remains a major drawback to investment and productive activities. So is the scarcity of refined petroleum products. A permanent solution lies in state divestment from downstream activities: refineries, depots, wholesale and retail outlets.
Externally, COVID-19 is still raging and is rebounding from China, while the Russia-Ukraine war is becoming a dreary slog. The fallout from these has been a global recession forecast to worsen this year and combined with the effects of climate change, will have negative impact on Nigeria’s oil-focused and import-dependent economy.
The template of borrowing to fund every government activity, including paying salaries and repaying debts, is self-destructive. Drastic reduction in recurrent expenditure is required. Creating new agencies, raising salaries and emoluments at this time is bizarre. Policies and spending should rather go into stimulating investments in job-creating ventures, exports, and SMEs.
Insecurity needs to be tamed to facilitate farming, mining, transportation, and commerce. The states should invest in agriculture and rural infrastructure. Diversification of revenue and exports should go deeper than the recent modest movement.
Badly handled, the elections could further raise national tensions and disrupt economic activities. Buhari should see through his repeated promises to ensure free and fair elections by giving full support to the electoral umpire and securing the country.
A successful election cycle and economic recovery will depend on Buhari’s ability to provide adequate security and ensure that both activities are conducted freely nationwide. Failure could cripple the economy and instigate greater instability. Buhari should not fail.