In a bid to clarify the controversies surrounding Nigeria’s debt, the Minister of finance, Kemi Adeosun has disclosed the history, short-term strategy, medium and long term outlook for Nigeria’s economy.
In an article posted on her facebook wall, Adeosun stated that the economy inherited in 2015 was in need of major adjustments, adding that despite the 10% of the budget which was allocated to capital expenditure, debt had risen from N7.9 trillion in June 2013 to N12.1 trillion in June 2015.
“Oil prices had plunged from a height of over US$120 to a low of US$28 per barrel yet, the country had foreign exchange reserves of US$28.34 billion (having declined by US$16 billion in the two years to June 2015 from a high of US$44.95 billion)”, she said.
She however disclosed that the present administration is set to work, with a vision, not just to return Nigeria to a stable economic footing, but to deliver a fundamental structural change to the economy that would reduce our exposure to crude oil.
According to her, “We approached this with a number of binding constraints that must be understood. One of these was that mass public sector retrenchments to create room for capital spending was not an option. Politically, it offended the principles of the All Progressive Congress (“APC”) and economically, it would worsen an already precarious economic situation and cause untold hardship. In light of this, an expansionary fiscal policy was adopted with an enlarged budget which would be funded in the short term, by borrowing”.
She added that following the economy’s recovery and growth, borrowings would be systematically replaced by revenue, which, according to her, “is the fundamental missing piece in Nigeria’s economic jigsaw”.
In lieu of this, she disclosed that the successful implementation of the Efficiency Unit and enrolment of Ministries, Departments and Agencies (“MDAs”) on Integrated Payroll and Personnel Information System (“IPPIS”) has increased savings to N206 billion in payroll costs.
Her words: “We have successfully saved N206 billion in payroll costs using technology to drive the cleansing process, with the removal of 54,000 fraudulent or erroneous entries. This was attained without the negative social impact of retrenchment.
“As we put our plans together, our economic modeling team correctly forecast that in the short term, there would be acceleration in the accumulation of debt and an increase in debt servicing costs. However, this would be ameliorated, by correcting the low tax to Gross Domestic Product (GDP) ratio through revenue mobilization, releasing funds to sustain investment in capital and repaying the debt. Mobilising revenue aggressively is not advisable, nor indeed possible, in a recessed economy but as Nigeria now reverts to growth; our revenue strategy will be accelerated. This is being complimented by a medium-term debt strategy that is focusing more on external borrowings to avoid crowding out the private sector. This would also reduce the cost of debt servicing and shift the balance of our debt portfolio from short term to longer term instruments.
The subject of inherited debt must also be drawn firmly into the mainstream of this discourse”.
She added that Buhari’s administration will continue to pursue a prudent debt strategy, tied to gross capital formation. This, according to her, will be attained by driving capital expenditure in ailing infrastructures which will in turn, unlock productivity and create the much-needed jobs.
“It must also be recalled that this administration is working harder on revenue generation than ever before. Blocking leakages, demanding efficiency and even breaching previous ‘no-go’ areas like tax compliance for our higher earners – there are no sacred cows.
“All these efforts are aimed at ensuring that Nigeria has an economy that distributes wealth and opportunity fairly among her citizens. This commitment to equity should equally provide assurance that we will never burden future generations with the responsibility for paying for past mistakes, rather, we will bequeath a vibrant and reformed economy. We are resolutely convinced, based on empirical data that our collective efforts will deliver a Nigeria that works for all Nigerians and in all global economic conditions”, she said.
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