Highly vulnerable because of its dependence on oil and the biting coronavirus pandemic, governments at the national and sub-national tiers are struggling to meet their financial obligations, including the payment of wages. Primarily, governments are finding it hard to pay workers’ monthly salaries because of the implementation of the N30,000 minimum wage adopted at the beginning of the year. The Director-General of the Budget Office of the Federation, Ben Akabueze, alluded to this during the ongoing defence of the 2021 budget by the Ministries, Departments and Agencies at the National Assembly. Since the mid-2014 oil price meltdown, Nigeria has been under a serious financial crunch.
Public service workers are having an unbearable time. There have been protests in some states, including in Abia and Imo in recent months over unpaid wages and pensions. Adamawa State Governor, Ahmadu Fintiri, admitted that the state was finding it difficult to pay wages since the onset of the pandemic. All the same, this trend is not new. As of June 2017, a BudgIT survey had found that 20 states owed workers’ salaries and pensions, some for 36 months.
But modifying his earlier statement, Akabueze blamed the challenge on the fact that in planning the 2020 budget, salaries at the federal level were based on the former minimum wage of N18,000. Thus, it became a complicated scenario for the Federal Government to pay when the new wage structure was implemented in January. In the short term, Akabueze explained that the Federal Government was managing to squeeze out funds from different sources to meet up.
To keen observers, there is much more to the debacle than his explanation. Public finance administration in Nigeria is deeply flawed. The country’s revenue sources have deteriorated sharply over the past year, aggravated largely by the COVID-19 lockdown that stressed the global economy. Income from oil, Nigeria’s main source of revenue, declined by 60 per cent, the Minister of State for Petroleum Resources, Timipre Sylva, said. The Group Managing Director of the Nigerian National Petroleum Corporation, Mele Kyari, just revealed that the corporation begged buyers to purchase crude oil at $9 per barrel in April, evidence of a precarious budget deficit, which is taking a toll on the economy and public finance. From the N4.97 trillion approved in 2020, this is projected at N5.19 trillion in 2021, representing 3.62 per cent of estimated GDP, well above the threshold of 3.0 per cent stipulated in the Fiscal Responsibility Act.
For decades, Nigeria had relied heavily on oil, but for several years now, it has been a net importer of refined petroleum products to the detriment of its shallow foreign exchange earnings. In 2018, it spent N2.95 trillion to import petrol, N1.97 trillion in 2017, N1.63 trillion in 2016 and N1.14 trillion in 2015, the National Bureau of Statistics said. This leaves government’s coffers leaner. Foreign Direct Investment, a critical economic driver, is receding fast, down to $2.2 billion in 2018 and $1.9 billion in 2019, UNCTAD stated.
To create a buoyant impression, the federal and state governments are plunging headlong into debt. From N20.37 trillion in September 2017, public debt snowballed to N26.21 trillion by September 2019 and N31 trillion in 2020, and is projected to hit N38.6 trillion by December 2021. The borrowing is principally to plug the deficit and fund recurrent expenditure. The naira is in a free fall, abetting inflation, which rose to 14.23 per cent – a 30-month high – in October.
Incidentally, these governments are not making rational economic decisions. The cost of governance is high at every tier. The Federal Government currently has too many MDAs. This is unsustainable. It is unwisely creating more specialised universities and other tertiary institutions. At the state level, governors, whose main source of income comes from the monthly sharing of the Federal Accounts and Allocation Commission, are undertaking white elephants like airports and universities they are unable to fund properly.
All this demands scientific choices in government. First, it is time the Major General Muhammadu Buhari (retd.) regime found the pluck to review and implement the Steve Oronsaye committee report on the restructuring of the MDAs. That report blamed the high cost of governance on the high number of the MDAs, which were 542 in 2011, but have multiplied to over 700. At no other time is this more expedient, something Buhari has acknowledged.
Second, the Federal Government should stop wasting scarce resources on loss-making state owned enterprises like the refineries and the Ajaokuta Steel Company. Third, the government should halt the political veneer of creating more universities, especially at a time it is negotiating with the Academic Staff Union of Universities, which has been on strike since March. This will allow the regime to commit more funds to education.
Lastly, it is critical to reduce the cost of governance, particularly in the executive and legislative arms. With a tax-to-GDP ratio in 2018 of 6.3 per cent, Nigeria is far behind the African average of 16.5 per cent and the Organisation for Economic Cooperation and Development area average of 34.3 per cent. The wealthy are mostly responsible for this abnormality. To be able to pay wages seamlessly, the government should collect taxes promptly and implement new security measures and other reforms to attract foreign investment. Government can boost tax revenue without hurting growth by building public trust, keeping the tax system simple, going digital in tax collection and finding new sources of revenue.
For state governments, they should see themselves as separate economic units and stop their over-reliance on revenue sharing from the centre. States should drop the idea of bogus projects, cut corruption and campaign rigorously for true fiscal federalism.
