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Daily Independent (Lagos)

Nigeria: Is the Country Broke?
Rotimi Durojaiye
19 February 2011




Lagos — Nigeria is reported to be facing crippling financial constraints that have already seen net aggregate expenditure for 2010 balloon to N900 billion as the Federal Government struggles to pay contractors and finance on-going capital projects.

It was reported that the recent 53 per cent increase in wages and the pending increased minimum wage, in addition to the 2009 and 2010 budget cuts, among other commitment constraints, compounded the financial pressure on government such that it was twice forced into reviewing civil servants' salaries between 2009 and 2010.

Minister of Works, Sanusi Daggash, was quoted as saying that under the circumstance, the Federal Government may not fully meet its obligation on capital projects, huge wage bills and other competing demands on its finances.

"The government is going through a very difficult period right now and that is due to one or two decisions that were made," he said in an interview with a national newspaper.

Other demands on government finances are the N78 billion released to the Independent National Election Commission (INEC) for the April 2011 elections, the N200 billion monetisation arrears, and the N65 billion payments made to the Power Holding Company of Nigeria (PHCN) workers.

"The implication of this on the net aggregate expenditure for 2010 was an increase of almost N900 billion from the 2009 to the 2010 budget framework", Daggash said.

He added that this led to the unacceptable cut in the capital vote to fund the recurrent expenditure in the budget.

He said "that was the first shock."

Daggash reckoned that the second shock was the issue of cash flow.

He said that even as the Federal Government reviewed the budget for 2010, they were confronted with the issue of cash-backing contracts.

"We could not effectively cash-back the reviewed framework. Because of this, we could not carry out our operations, meet government's obligations, pay contractors and then deliver on essential and needed critical road projects, new investment, and even speed up maintenance.

"The inability to cash-back affects the Ministry of Works, because in the construction of road works, you need planning and programming. The contractors for the period 2010 to 2011 would have done their planning from 2010, but somewhere around May/June in 2010, we reviewed the budget downward by 40 per cent. That effectively suggested that every contractor had to slow down and in some cases, stop work."

The works minister said huge money had gone into recurrent expenditure and this has affected delivery on capital projects and payment of contractors for certified projects.

"The contractors are not ready to work on credit, and many of them have actually accumulated certified certificates for outstanding payments. They are just waiting for payment whenever there is cash release. For now, no magic could really be done because in the budget framework, what is first is the recurrent expenditure."

Another way to mitigate the problem and trigger more releases to the capital side, according to Daggash, would have been to resort to the oil revenue, which picked up following the rise in oil price.

Daggash said that did not happen because effectively, the budget was running on a major deficit, which was initially in the range of about N1.7 trillion to N1.8 trillion.

"The finance minister, after the 40 per cent cut, expected the budget deficit to be halved to about N800 to N900 billion. But even after the review, the budget was still reflecting a N1.3 trillion deficit profile. So, inasmuch as the Ministry of Finance had released over N900 billion or so in capital releases, they still had another funding gap of about between N400 billion and N500 billion. This adversely affected the major spending sectors of the economy", the minister stated.

Notable Nigerians have continued to raise concerns on the state of the economy.

The Presidential Advisory Council (PAC) led by former Defence Minister, Retired Lt.-Gen. Theophilus Danjuma, recently expressed concern over the increasing high cost of governance in Nigeria, advising President Goodluck Jonathan to work towards reducing the number of ministries, departments and agencies (MDAs) and the overheads incurred in running them.

Specifically, PAC drew attention to the size of government at all levels and called on the President to tackle these and other developments impacting the economy.

PAC, in its recommendation submitted to President Jonathan asked the Federal Government to begin the process of merging and reducing the number of federal ministries and other government agencies "to help cut down heavily on government unnecessary spending."

Minister of Finance, Dr. Olusegun Aganga, had in September last year set up a committee to review the bourgeoning current and overhead expenditure of the MDAs.

Danjuma told journalists at the end of the PAC meeting with the President that the cut down in overhead by government agencies would help direct government spending on infrastructure development.

Danjuma said one of the suggestions made to Jonathan at the meeting was "reducing the number of ministries is one of them and where there are functions they should be rationalised."

He stated that boosting the nation's economy was paramount to the Presidential Council.

According to him, the President assured the Council "that most of the points we raised are already being addressed by government. And we have been promised that we shall have a feedback from government. And even if necessary, we shall be involved in finding remedies to all the issues we have raised."

Consequently, the campaign organisation of the presidential standard-bearer of the Action Congress of Nigeria (ACN), Nuhu Ribadu, called on President Jonathan to resign following the revelation of the Presidential Advisory Committee (PAC) that the financial recklessness of the government is threatening the economy.

Reacting to the development, the Nuhu Ribadu Campaign Organisation called for the President's resignation saying it is particularly worrisome that the damning verdict was given by the President's own advisers.

"The President, who seems to be helpless in the face of this national problem, should also resign on the grounds of the findings of the PAC," Ibrahim Miodibbo, the spokesperson of the organisation said in Abuja.

"It is even more compelling that it is the President's own advisers who are not only admitting this, but apparently chastising the government for its inactions by calling for the President and his administration to be more proactive in the fight against corruption."

However, despite the recommendation of the advisory committee that he should prune the number of ministries, departments and agencies, President Jonathan has not only kept a large cabinet but increased the number of aides with the appointment of three new advisers.

Human rights activists who spoke on the issue described Jonathan's activities in the light of the PAC's recommendations as an act of irresponsibility.

"We are complaining that the size of the government employees is too large and he is still enlarging it. That is irresponsible," Carol Ajie, a Lagos-based lawyer and human rights activist said in a telephone interview.

Ms. Ajie also queried the depletion of the Excess Crude Account arguing that the government's expenditure has not translated into growth.

"Why is the excess crude account depleting? Why is he emptying the treasury? What about the future? Why does he want the country to stop moving? These activities are not translating into development. He owes the country an explanation," she said.

There have been concerns over the state of the Excess Crude Account.

Recently, the foreign media carried reports about the reluctance of foreign investors, who were worried about the unchecked depletion of the ECA, to invest in the $500m bond issue of the government.

"Mounting concern about a huge outflow of money from Nigeria's "rainy day" oil fund has prompted some big investors to shun the country's debut international bond issue," reported the Financial Times.

The report also said the Excess Crude Account had depleted from $20billion in 2007, when former President Olusegun Obasanjo who created it left office, to less than $400million in September 2010.

Financial Times Africa Editor, William Wallis, has been covering Nigeria's foreign investment since 2007. Wallis explained why foreign investors were reluctant to invest in the bond.

"You would not normally for example expect foreign reserves to be going down, and oil savings to be depleted, while debt levels are rising too, all in a year when oil production has recovered and prices are soaring," Wallis said.

"These more sceptical investors concluded, so they say, that the general direction of economic management looks worrying and the risks are too high, They may decide that any mismanagement is connected to the election process, in other words is short term and decide that fiscal prudence again will improve after April."

Indeed, a few days before the Peoples Democratic Party (PDP) held its presidential primary, the Federal Government drew $1billion from the Excess Crude Account.

The money was said to be shared among the federal, state and local governments but some media reports suggested that the money was disbursed to enable governors fund the Jonathan/Sambo campaign.

President Jonathan's critics wonder if money from the account is being used for development but the Presidency insists that the right steps are being taken to put economy on track and it is only a matter of time before Nigerians begin to see the fruits of the government's policies.

Former Governor of the Central Bank of Nigeria (CBN), Professor Chukwuma Soludo, had challenged Aganga, to a televised debate over the state of the economy.

In a newspaper advert published on January 30, 2011, Soludo stood by his claims about the state of the economy and defended his record as CBN governor between 2004 and 2008.

However, Aganga declined the challenge, saying that he had more important economic issues to attend to.

Aganga, instead referred Soludo to investors, "who lost so much money in the capital market."

He said: "I'm not interested in responding. I made a first comment and he has responded. I'm not a politician; I'm a technocrat and I have work to do. Let Nigerians who have lost so much money in the capital market judge. Let taxpayers, whose over N2tn is being used to fund the Asset Management Corporation of Nigeria to bail out the banks judge."

The minister said his main assignment was to see the economy improve significantly, noting that the Federal Government was committed to seeing things work.

In the open letter to Aganga, Soludo said: "If you are convinced that you know what you are talking about in respect of the economy, and/or that you are sure of what you said about my regime, I challenge you to a two-three hour televised national debate on these issues. Indeed, within the month of February 2011, I will publish a synopsis of the highlights of my tenure at the CBN - just for the record - and I will challenge you to debate them live on national TV with me."

Aganga, while reacting to claims on the economy by former Vice-President Atiku Abubakar, had been quoted as insinuating that Soludo should be in jail for his role in the economy during his tenure as CBN governor.

Soludo accused the minister of trying to defend the indefensible on the economy, declaring "By trying to respond to the former Vice President (Atiku Abubakar), you ended up avoiding 90 per cent of the weighty issues raised in that letter; and by attempting to provide laughable excuses, you make people shudder in disbelief."

"On a positive note however, I must congratulate you, if what DG-DMO was quoted as saying is true that the Federal Government has now agreed to borrow or issue bonds only for specific projects. At least, you have taken the first step out of at least six components of what must constitute a sensible debt strategy for Nigeria instead of trying to defend useless debt-to-GDP ratios," he added.

Soludo chided the minister for defending debt accumulation "on the basis that countries like U.S., UK, and European countries undertook 'stimulus packages' and ran high deficits during the crisis.

"Hon. Minister, these countries you cite were all in recession and the Treasury had to bailout their banks by recapitalising them. Except if your figures are wrong, Nigeria was neither in recession nor did the Ministry of Finance spend a kobo to bailout banks."

He further wrote: "If the figures you bandy on GDP growth (at over 7.5 per cent) is right, then Nigerian economy must be 'booming' and the idea of a 'stimulus package' and hence high deficit is a contradiction in terms. This is Macroeconomics 101, sir! Please stop shocking Nigerians by trying to excuse the depletion of our foreign reserves at a time of export boom on the grounds that what is left would still meet more than three months of imports. This is new Economics by your Economic Team.

"Perhaps, you should become economic adviser to China and all other countries to fritter away their foreign reserves until it can finance three months of imports, and for Nigeria, when oil price crashes we can then use water to pay for imports. Nigerians expect you to sit down and find solutions to the other issues and stop the shadow boxing. Congrats also for setting up a Committee to review public finance. These are part of the issues we raised in our earlier article in September 2010. I can notice other feeble actions being taken. That is how it should be in a democracy.

"But you must get serious, Hon. Minister. When you look Nigerians in the face and point to flattering comments on Nigeria's prospects by some people in some conferences as your proof that Nigerian economy is doing well, it does not make you look well informed; especially in the face of hard evidence to the contrary. As you were busy blaming people for 'talking down the economy', the UNCTAD report released in Geneva on January 17, 2011 slammed you again with a red card: foreign direct investment (FDI) into Nigeria dropped by 62 per cent in 2010 (from $6 billion in 2009 to $2.3 billion in 2010)-again the worst in many years, and even worse than during the global crisis. While developing and transition economies increased their FDI inflows by 10 per cent in 2010, Nigeria's FDI fell by a whopping 62 per cent. During our tenure, FDI was more than doubling every year and even at the peak of the global crisis in 2008, stood at about $8.5 billion. Do you get the point, sir? The international investors are sending a strong message to you, Sir. You need to get your act together."


http://allafrica.com/stories/201102210374.html

looks that way.

Nigeria is broken!