FOCUS ADETILEWA ADEBAJO
Amidst the counter accusations of money printing by the two
Godwins, denial by the National Economic Council, and
statement by the Nigerian National Petroleum Corporation
(“NNPC”) that it will be unable to remit funds into the
federation account for several months; several issues started
to manifest in my mind concerning the state of the nation.
What is the true state of our economic decline, debt levels
and descent into a state of anarchy? Several social media
posts documenting the facts that in the past week alone
over 150 Nigerians killed, was particularly depressing. These
killings across the nation were related to kidnapping,
insurgency and internal strife. The humble fulani herdsman
has been weaponized and converted to a tool of insurgency.
This week, the government of the United States of America
also upgraded its travel advisory to Nigeria to level three,
advising its citizens to reconsider travelling to Nigeria and if
they must travel, they should put in place kidnapping
protocols and prepare their evacuation arrangements without
assistance from American authorities. We are one step off
the highest level, level Four, which advises Americans not to
travel to Nigeria. While the dire security situation in Nigeria
has not been adequately addressed, the local narrative and
official explanation varies depending on who you talk to. The
American travel advisory without any ambiguity, defines how
the world now views Nigeria.
As a fallout the money printing saga I decided to extend
my Q1 2021 Nigerian economic report and conduct a more
comprehensive review, focusing on the rising debt profile
which dates back to 2014, when the economy grew by
6.5% with a GDP of USD569bn, a historic high.
Flashback to an article published by Fitch in January 2021,
which warns that Nigeria’s deficit monetization may raise
macro stability risks. The report stated, that the Central
Bank of Nigeria (“CBN”) had financed the budget deficit
directly with NGN10trn (approximately USD25bn). Fitch also
warned that “…Repeated central bank financing of
government budgets could raise risks to macro-stability in
the context of weak institutional safeguards that preserve
the credibility of policymaking and the ability of the central
bank to control inflation. The CBN’s guidelines limit the
amount available to the government under its Ways and
Means Financing (“WMF”) to 5% of the previous
year’s fiscal revenues. However, the FGN’s new
borrowing from the CBN has repeatedly exceeded that limit
in recent years, and reached around 80% of the FGN’s
2019 revenues in 2020”. The report stated further that
“the CBN’s guidelines requires borrowing under the WMF
to be repaid in the year in which it was granted. The
government has stated its intention to securitise balances
borrowed under the facility, but published statistics indicate
that the amounts borrowed have been rolled over repeatedly
in recent years”.
In effect the CBN was out of step with its own guidelines
and has also not publicly released its audited accounts in a
while. In February 2021, the Debt Management Office
(“DMO”) under the Ministry of Finance confirmed the level
of WMF at NGN10tn (approximately USD25bn). They
admitted that they had engaged with the CBN in WMF since
2015 to plug the budget deficit. The DMO also announced
establishment of a 10-year to 30-year bond issuance
program to refinance the WMF, in compliance with the CBN
guidelines. The question that remains unanswered is how the
CBN, out of step with guidelines, funded NGN10tn
(approximately USD25bn) to finance the budget deficit? The
CBN intervention programs and financing in the local and
international capital markets are well documented and require
legislative approval. In the absence of published audited
accounts, is it not logical to presume that the CBN must
have printed to support WMF over the past five years?
While the doctrine of necessity allows leeway for central
banks in time of economic downturn and crisis to resort to
printing money or WMF, the Nigerian situation started in
2015, with the COVID-19 pandemic and ensuing recession,
exacerbating the situation. From all accounts, the USD25bn
WMF has not been accounted for in Nigeria domestic and
total debt profile.
According to DMO data in 2014, Nigeria’s total debt was
USD67.7bn with domestic debt accounting for USD57.9bn
and foreign debt USD9.7bn. By 2020, Nigeria’s total
debt increased by 27.5% to USD86.3bn, with domestic
debt accounting for USD53.0Billion (a declined by USD
4.9bn or 8.5% from 2014 total domestic debt) and
foreign debt accounting for USD33.3Billion (an increase by
USD23.6bn or 243.3% from 2014 total foreign debt). At
this level of total debt, 80-90% of government revenue
for the Q1 2021 was going towards debt service.
A different picture emerges when you include the unaccounted
USD25bn WMF in the CBN books. In reality, the total
debt stock increased from USD67.7bn in 2014 to a record
high of USD111.3bn in 2021 (a 64.4%increase). This
directly impacts domestic debt as it rises from USD57.9Billion
to USD78bn (an increase by USD20.1bn or 34.7% from
2014 total domestic debt). The DMO March 2021 report,
when released, should clarify the current position of our total
debt profile and how much of the USD25Billion WMF has
actually been refinanced.
Recently, the national assembly approved a foreign loan of
USD2.5bn. Taking into account the WMF, this will take
the total debt stock to US$113.8bn. From the analysis
above, it is clear that with Nigeria’s current debt profile,
servicing its debt with over 80 to 90% of its revenue is
no longer sustainable. As a result of this debt profile and
declining revenue situation red flagged by the NNPC
pronouncements, Nigeria can now be classified technically
insolvent.
A review of the key economic indicators for the Nigerian
economy between 2014 to Q1 2021 (the period under
review), suggests sub-optimal performance. In 2014, The
Nigerian economy was growing steadily at about 6.5% until
policy inconsistencies forced the economy into a self-inflicted
recession in 2016. The government responded with an
Economic Recovery Growth Plan (“ERGP”). The plan
promised, but was unable to stem the economic decline to
deliver 7% growth by 2020. Since the 2016 downturn,
the Nigerian economy has not grown beyond 2.5%,
considering its population growth rate of 3.5%. Between
2016 and 2020, Nigeria lost USD218bn (approximately
40% of its GDP). This is equivalent to Portugal’s GDP,
three times Ghana’s GDP and six times Cameroon’s
GDP. Inflation also hit a 10-year high of 18.7% in
January 2017 and the monetary authorities were able to
reduce it to 11.9% by December 2019.
Unfortunately, as a result of cost push factors, by March
2021 inflation was up by 18.2%. Food inflation, at just
over 22%, is the key driver of inflation, despite a
NGN1.5tn intervention by the CBN in the agriculture
sector. The recent hike in utility rates and fuel subsidy
removal has done nothing but sustain the upward trajectory
of inflation rates. The Naira suffered over 300%
devaluation as it moved from NGN160/USD1 to NGN 480/
$1 under the review period. The static exchange rate
mechanism and multiple exchange rate windows have been a
sore point. They remain in place, despite calls for a single
window and a market driven rate mechanism.
The biggest challenges during this review period were fiscal
indiscipline and the perpetual budget deficit the government
struggled to finance. The government admitted in its 2021
budget presentation, that it is now in violation of the Fiscal
Responsibility Act which stipulates a value of 3.5% of GDP
as the budget deficit ceiling. Unemployment rate more than
tripled from 12% in 2016 to 45% by Q1 2021.
Factoring underemployment and youth employment reveal higher
numbers. As a result of sub-optimal economic growth and
declining GDP, over 100 million Nigerians entered into
poverty and Nigeria became the global poverty capital.
Increasingly, our population instead of being an asset with a
viable consumer market and aggregate demand of 180 million
people is fast becoming unproductive with meagre disposable
income and a liability.
From the data available, it can be established that self-
inflicted policies caused the first recession in 2016.
However, the shocks to the economy as a result of the
pandemic lockdown and the sharp drop in oil prices caused a
downturn in an already fragile economy and tipped it into
another recession in 2020. In Q2 and Q3 2020, the
Nigerian GDP contracted by -6.10% and -3.62%
respectively. However, by Q4 2020 Nigeria exited recession
with 0.1% growth.
The irony as with the last recession is that our economic
and financial managers did not have sufficient buffers in
place to help withstand the shocks. At the onset of the
pandemic, the NSIA stabilisation fund had only USD350mn
and Excess Crude Account (“ECA”) a paltry USD72mn.
A sum of USD150mn (approximately NGN57bn) was
withdrawn from the NSIA in April 2020 to support a
NGN5tn budget deficit. In contrast during the 2009 global
financial crisis, the ECA had USD22bn, which saw Nigeria
through the crisis.
As a response to addressing the impact of the shocks to
the Nigerian economy during the period under review, the
FGN began to step up its social intervention programs and
engage in consultative meetings with stakeholders across all
sectors of the economy. While these programs are laudable
and pilots have been successful, it is clear that the
government cannot fund the program. The best way out
this quagmire is to grow the economy by over 6.5% to
10.0% on a sustainable basis, lifting the masses out of
poverty in the process. The CBN also increased its
intervention program with additional funding to cover the
healthcare and SME sectors, ensuring liquidity and credit to
the economy. An ambitious infrastructure fund with over
USD20bn is being developed and request for proposals
(“RFPs”) have gone out for fund managers. Rate cuts
were also announced on intervention funds and MPR base
rates, giving banks the confidence to continue lending and
providing the much-needed stimulus. On the 24th of June
2020 the FGN approved The Nigeria Economic Sustainability
Plan (“NESP”). This is in an effort to cushion the
adverse effects of the pandemic on Nigerians and define a
policy framework and implementation roadmap to economic
recovery.
On the 28th April 2021, barely a year after the approval
of the NESP, the Federal Executive Council approved The
National Poverty Reduction with Growth Strategy, prepared
by the president’s economic advisory council. We are not
sure if this supersedes or compliments the NESP.
The CBN MPC meeting held early 2021 maintained the rates
as the economy came out of recession earlier than expected.
The results of the NESP are yet to bear fruit as the
government is struggling with the 2021 budget
implementation and deficit financing. We are now faced with
stagflation, a situation more protracted than a recession. It
is clear that monetary policy has reached its limits and
supply side structural reforms and fiscal discipline are now
required to get the Nigerian economy out of the current
stagflation quagmire. The most urgent structural reform is
immediate removal of subsidies across the economy in
particular the fuel subsidy. NNPC recently announced that it
will be unable to remit revenues to the federation account
for several months as a result of the subsidy payments.
The short fall will put addition pressure on the CBN and the
WMF.
In the period under review, we now face the stark reality
of stagflation, a declining economy that lost USD210bn of
its GDP, with 0.1% growth, runaway inflation at 18%,
USD113.8bn debt stock with 90% of revenues going to
debt service, unsustainable budget deficit, 300% currency
devaluation, the Nigerian Naira trading at NGN500/$
(based on parallel market rates), 100 million Nigerians in
poverty and over 50% youth unemployment. The security
situation also seems not to fair better. Recent headlines
from Thisday newspapers reads “Nation in turmoil, bandits
kill two more Kaduna students” and Nigerian Tribune reads
“Niger gov. raises alarm Boko Haram 2-hour drive from
Abuja, hoists flag in Niger” There seems to be a failure
of the intelligence services and lack of coordination between
the security agencies and armed forces. The Nigerian
president in recent conversation with the US Secretary of
State is now requesting for The US Africa Command
(“AFRICOM”) to relocate from Germany to Africa.
The fundamentals of the Nigerian economy despite these
challenges remain strong. The Nigerian economy remains the
largest in Africa even with the loss of GDP three times
that of Ghana in recent years. It is however time to stem
the decline and put in place sustainable policies that will
sustain growth and lift the masses out of poverty. The
problem has been with policy formulation, fiscal indiscipline,
lack of presidential leadership and poor coordination of
monetary, fiscal, trade and investment policies.
In September 2015, I published an article in Ventures in
Africa which put forward suggestions on policy initiatives to
the new government, to help drive the Nigerian economy
towards a G-10 ranking. Nigeria had achieved USD570bn
GDP and created dollar billionaire’s business men and
women. At the time the policy suggestions were seeking to
drive Nigeria economy to a USD850bn GDP by 2020, with
the overall objective of how Nigeria can implement sustainable
policies, that can help us realize the true potential of a
USD1tn GDP economy. Unfortunately, as at Q1 2021,
Nigeria’s GDP is only USD350bn.
Elections are about 20 months away and party primaries
start in another 12 months. This administration has to face
that fact and set realistic goals as to what it can deliver
in the next two years before it hands over to the next
administration. It should focus on completion of legacy
projects such as the second Niger Bridge, Lagos to Ibadan
and Kano rail projects and extensive road rehabilitation
projects across the country. The priority for the nation now
is an urgent security summit that the president must convene
at the local, regional and international level.
The support of the USA and French government is critical in
the resolution of the security situation. If the security
challenges are not resolved the economy might collapse from
the weight of turmoil.
Oustside the security situation, the fiscal indisciple, inabiltily
to optimize revenues, cut cost and right size government are
the achilles heel of this administration. There has also not
been a proper coordination of monetary, fiscal, trade and
investment policy and singular leadeship of the related
agencies by the presidency. This has to be urgently
addressed. We welcome the launch of the Strategic Revenue
Growth Initiative (“SRGI”) and the annual Finance Act to
help susustain revenue generation, create new streams and
optimize costs. We will also recommend to the government in
addition to subsidy removal across all sectors of the
economy, the review, update and implement the Ornasanye
report. There is a significant amount of fiscal structural
reforms that needs to be done to jumpstart the economy as
monetary policy has reached it limits.
First quarter 2021 The Nigerian economy recorded a paltry
0.5% GDP growth while poulation was growing at 3.5%,
Inflation rate eased to 18.12% in April down sligtly from a
four year high of 18.17% in March. Unemployment and
under employment still over 50%, with monetary policy rates
unchanged at 11.5%. The CBN finnally consolidated its
multiple FX windows in alingement with the Nafex rate. This
futher devaluing the naira by about 7% to US$1/410 and
sending the parrlel market rates to a record high of US
$1/500. Market returns for the ASI shows a fall of 9%
for Q1 2021. ASI declined from 5.3% in January to
-1.2% in February and further to -3.0 in March. The
q12021 numbers confirm an exit from a recession and
stagflation taking hold. Feable growth, high unemployment,
runaway inflation and unsustainable debt levels now plauge the
Nigerian Economy.
The 2021 budget is focused on repositioning the Nigerian
economy on three pillars: Recovery, Growth and Resilience.
This cannot be accomplished without political will and leadership
from the presidency to drive policy implementation. The
president has assembled a sound team of ecomonic policy
advisers that report directly to him. They are aware of the
narratives, facts and figures around the declining economic
situation. I have no doubt that they have profferd viable
solutions to the problems. With contributions from the CBN,
MOF, MITI, the president’s economic advisory committee
and the Nigeria Economic Sustanability plan, we have a
viable policy framework in place to reveive the Nigerian
Economy.
With two years left with the present adminstration the
question we need to ask is this; is Mr President willing to
muster the political will to restore fiscal disipline and implement
policies to jump start the economy, or will he hold back and
continue the decline?

•Adebajo Investment Banker and Economist, CEO of The
CFG Advisory.



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