As a result of the recent warning by the International Monetary Fund (IMF) to Nigeria to halt her rising debt stock, fast track structural reforms and diversify the revenue base or face imminent crisis, the Federal Government has acknowledged that the concerns raised at the IMF/World Bank annual meetings in Bali, Indonesia, require a new strategy for revenue and debt management. Therefore, it has reassured investors of renewed plan to broaden the revenue base and ensure debt sustainability.
Currently, Nigeria’s debt profile stands at N22.3trn as at June 30, 2018, while debt servicing in 2017 was N1.8trn and N2.1trn in the 2018 budget. But fiscal plan shows a shortfall of N2.426trn, just as foreign direct investment inflow has declined sharply in the last two years. However, the Minister of National Planning, Udoma Udoma, and the Director-General of the Debt Management Office (DMO), Patience Oniha, said there is a silver lining in the horizon as government has evolved strategies to rev up the earnings capacity by broadening the tax base and maintaining fiscal discipline.
This is one of the ways forward for the economy, which is said to be threatened by another recession. But the focus should be on diversification and debt management. It is instructive that government has admitted that Nigeria’s debt-to-revenue ratio remains abysmally low and therefore vulnerable to both domestic and external shocks.
As IMF cautioned, Nigeria should not be tempted to delay reforms in spite of rising oil prices. Available statistics show that oil production challenges in the second quarter of 2018, reduced agricultural output and flooding in the agricultural belt of the country distorted expectations and resulted in reduced growth projection to 2.1 percent. Due to high rate of our population growth, Nigeria needs much higher growth rate in agriculture for the people to feel the impact of any economic growth. IMF’s projection for Nigeria in 2018 is 1.9 percent, which is slightly lower than government’s projected growth rate.
All things considered, government should put policies that will make the economy withstand vulnerabilities. There is urgent need to create more jobs for the rising youth population whose unemployment rate is put at over 38 per cent. Although government has announced plans to diversify the economy, the fruits of such efforts are coming slowly. The CBN’s provision of N500bn agriculture loan to farmers under the Anchor Borrowers programme to boost local food production is a good development.
However, this must go together with developing other non-oil sectors of the economy. To achieve our dream of self-sufficiency in food production and boost the revenue base, government should tackle all threats to food production. The government must summon the political will to find permanent solution to the herdsmen menace.
Similarly, government should look into the reported decline in the inflow of foreign direct investment into the country, which dipped to 8-year low of $982m in 2017. This is far from what is expected of an economy that wants to be in the league of 20 largest economies in the world in 2020. That dream is growing thin by the day. But the DMO boss said that for FDI to impact positively on diversification, it will take longer term to mature.
While this may be true, the present security challenges seem to hamper the prospects of FDI inflows. We maintain that while our economy has potentials to ramp up growth, it is yet to receive the necessary boost that can withstand the shocks that pushed it into recession. We also share the observation of both the IMF and World Bank that though government’s Economic Recovery and Growth Plan (ERGP) may have brought optimism, the blueprint has not yet impacted on the non-oil sector.
Sadly, Nigeria still retains higher fiscal deficits, driven by weak revenue generation amid continued tighter domestic financing conditions and external borrowings. Nonetheless, there may be a silver lining at the end of dark economic tunnel if both the fiscal and monetary authorities play their roles well.
Recently, the Governor of the CBN, Godwin Emefiele, said the apex bank would be more interested in the stability of the naira than a bigger foreign reserve. While that makes economic sense, there is need for a growth-friendly fiscal adjustment that will be tailored to enhance revenue generation and check rising debt profile.
