Nigeria’s economy is experiencing fragile recovery- Prof Ekpo .Says FG’s move to borrow$5.5bn for 2017budget can improve infrastructure if…

Nigeria’s economy is experiencing fragile recovery-   Prof Ekpo

.Says FG’s move to borrow$5.5bn for 2017budget can improve infrastructure if…     

By Udeme Clement

Akpan Ekpo is a Professor of Economics and the current Director General, West African Institute for Financial and Economic Management (WAIFEM), owned by the Central Banks of the Gambia, Ghana, Guinea, Liberia, Nigeria and Sierra Leone with headquarters in Lagos. In this interview with Financial Business & Maritime News, he spoke on the plans by the Federal Government to to borrow about $5,5billion to fund 2017budget, the economic implications of continuous borrowing by government in  a growing economy like Nigeria, the performance of the Central Bank of Nigeria and its monetary policies in  2017, especially in tackling forex crisis in the system, the performance of the budget so far and the level of economic growth in Nigeria in the last 57 years.

President Buhari is seeking approval of the Senate to borrow about $5,5billion to fund 2017budget.  Do you think this is a good decision, especially at the time the economy is strugging to recover from a recession?

We have been informed that the present government met an empty treasury; various reports showed the extent the treasury was looted by previous government. If government must fund its activities, money must come from internal sources such as taxes of various forms, earnings from investments, borrowing (domestic and foreign) selling national assets and printing money.  If as a government your revenue can not match your expenditures then that gap must be met through borrowing. There is nothing wrong with borrowing provided it is directed towards projects that can pay its way over-time, that is, nothing wrong in borrowing to finance capital projects, that is hard infrastructure such as power, roads, transport as well as soft infrastructure such as education and health. Research has shown that if an economy borrows to finance capital projects, such as infrastructure, then there would be positive multiplier effect on the economy even if the deficit/GDP ratio of 4% is violated. After all the golden rule allows an economy to borrow to finance capital projects. If the government is, therefore, borrowing to finance and close the infrastructural gap in the economy (as provided in the budget) then there is nothing wrong. However, the issues to address should include what are the sources? Is the money coming from multilateral institutions such as the World Bank, African Development Bank and/or bilateral arrangements?  Is the money coming from floating bonds (domestic or foreign)? The government should explore borrowing from multilateral institutions because of the long payment period, concessionary rates as well as the flexibility of negotiating rescheduling if things go wrong within the economy.

There is no question that if the economy was and is well managed, oil revenues could finance the capital projects in the 2017 budget. After-all, what is $5.5billion to the Nigerian economy; more than this amount has been stolen by various individuals over-time. The economy is experiencing a sluggish recovery hence this is the time to finance hard infrastructure and create jobs. Another source of raising quick money is to increase VAT marginally to say 7.5%. However, it is necessary to examine the Act authorising VAT, to ascertain whether the rate can be increased. The tax/GDP ratio in Nigeria is very low but there is also a limit to taxation. It would be desirable to bring more people into the tax net than increasing the tax rate. Furthermore, the saving rate in Nigeria is very low, less than 4 per cent, thus there is no incentive for economic agents such as households and their families to save. If banks can make savings attractive, the pool of funds would provide investible funds, which could help finance some of the projects by the private sector thereby taking some pressure off the government.

As economic expert, what are the economic implications of continuous borrowing by government in  a growing economy like Nigeria?

I have said there is nothing wrong in borrowing provided it is targeted towards infrastructure and the debt profile is well managed. There is no doubt that it not desirable to continue to borrow for frivolous reasons such as the debt/GDP ratio provides the space for continuous borrowing In the Nigerian case, for example, after the rebasing, the debt/GDP ratio indicated enough space for borrowing because the denominator, which is the GDP became very huge but GDP does not pay debt; it is revenue that pays debt, hence the crucial ratio ought to be the debt/revenue. If this ratio is computed, then the economy must be careful in continuous borrowing. In the 2017 budget, about 1.2trn is set aside for servicing the country’s debt. This is too high for a growing economy. One issue some commentors seem to forget is that the ruling elite is building a capitalist economy, which thrives on credit and debt. Therefore, borrowing is part and parcel of the economy. That is how the economy survives and reproduces itself. However, if there are no positive outcomes from borrowing such as frequent power supply, good roads and transport system, quality education and health then the future generation that is charged with the responsibility of paying the debt will abuse those before them even in their graves. Hence, it our responsibility to ensure that government borrows wisely and knows when to draw the line so as to avoid what the economists call the debt overhang.

We are already in the last quarter, as 2017 fiscal year is fast running out. What precisely will you say the economy has achieved in 2017?

In 2017, the economy is technically out of recession and experiencing a fragile recovery. There are signs that import of luxury items has reduced, as people are beginning to buy made-in-Nigeria goods. However, the misery index remains high.

How will you assess the performance of the Central Bank of Nigeria (CBN) and its monetary policies in  2017,  especially in tackling forex crisis in the system?

The Central Bank has done its best in the circumstance. For a long-time, there was the absence of fiscal policy.  The co-ordination between monetary and fiscal policy was weak. The CBN seems to have stabilised the foreign exchange market and thanks to improved oil price. The ban on 41 items has been effective to a large extent. For me, the CBN in its last two MPC meetings has taken the right decisions (keeping all the fundamentals like the MPR, CFRR and others unchanged) thus allowing fiscal policy to walk the talk.

looking at the performance of the budget so far, can you say the infrastructure need of Nigeria’s economy has been addressed?

The 2017 budget allocated about 30 per cent to capital projects. It is the duty of government to inform the citizens about the outcomes, that is, the implementation. It is important for government through monitoring and evaluation to provide quarterly or at least half year report of the budget. This would ensure accountability and transparency. However, let us remember that the 2016 budget was extended to March, 2017. Therefore, the 2017 budget may not have commenced in January 2017. It is the duty of government to tell people the performance of the budget so far.

Nigeria just marked 57 anniversary in October 1st.  What level of economic growths have we achieved as a nation in the last 57 years?

After 57 years of political independence, about 75 per cent of Nigerians still lack the necessities of life such as quality education, quality health care, running water and regular power supply.  No housing provision for the  people. There are issues like high rates of unemployment, high infant mortality rates, high rates of death for women who give births and declining trend in other vital social indices. Consequently, even during episodes of positive growth rates above the population growth rate such as in the 1960s, mid 1970s, mid 1980s and so on. (averaging 6.5% growth) the message to stress is that growth is not development. It has been 57 years of developing and underdevelopment.

With high rates of poverty and unemployment. Is there any prospect for the economy?

There is always prospect for an economy with visionary leadership. That leadership would include a team committed to building an economy in which all the citizens have equal opportunities to make a decent living. The leadership must implement an economic blueprint that sees development as top priority. The prospect for the Nigerian economy is in implementing a developmental state economic blue print within the framework of market socialism. After 57 years, it is time to try a new and different system. It is new in the sense that it is new for us. It does not mean that such a system does not exit somewhere else, or that we cannot learn from the experiences of other countries and leap-frog into development. We can learn from Singapore, China, Malaysia, Ethiopia, Rwanda and other countries that have fast-tracked the development of their economies. It took the UK 200 years to industrialise, address poverty and unemployment. It took the former Soviet Union 30 years to industrialise. In recent times, China has moved within a short period millions out of poverty. Singapore moved from being a third to a first world in less than three decades. Nigeria can be next.