Waziri Adio: Tough choices for Buhari to make these tough times

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The new opposition, the Peoples Democratic Party (PDP), will soon recover from its present disarray and will definitely get on ’s case. It has all the incentives to do so.

Our public finance is not in a good place at the moment. And it is not going to get better any soon. On Friday, the three tiers of government shared N388.33 billion from the Federation Account for the month of April. When compared to the N435.05 billion they shared for March 2015, this is a sharp fall of 10.7% within one month. The picture is grimmer when the current figure is compared to the N628.8 billion they collected for November 2014: revenues shared by the three tiers of government have slumped by 38.2% in six months.

As the slump continues and as the wriggle room narrows, the mask is beginning to fall off. The long predicted, and long denied, crunch has finally arrived. Expectedly, the effect of the plunge in prices of crude oil is beginning to bite. All tiers of government, including the federal government, are struggling to pay their contractors and staff. Some states owe civil servants up to six months. One state has reportedly slashed salaries by more than a third, and it is not inconceivable that others will embrace this model. The federal government, according to the outgoing Coordinating Minister for the Economy/Minister of Finance, Dr. Ngozi Okonjo-Iweala, is borrowing to meet its obligations to workers and others. As at April, N473 billion had been borrowed, representing 54 per cent of the total debt budgeted in the 2015 budget.
If payment of salaries is already a challenge across the board, the fate of other overheads and capital expenditures is better imagined. Though crude oil is now selling above $60 and way above the approved benchmark price of $53, oil price recovery is not enough to tie us through these lean times. Late last year, the International Monetary Fund (IMF) and Deutsche Bank projected that we need oil to sell at $126 per barrel to balance our 2015 budget. That is not likely to happen anytime soon. In fact, it is doubtful oil prices will stay above $60 for long because of possible increase in global oil supply as, among others, the Iran nuclear deal gets sorted and oil from fracking proves resilient.

The glut in the oil market, compounded for us by unprecedented level of oil theft, shut-ins and loss of the United States as a major up-taker, creates a cash-flow problem which constrains our capacity to borrow our way out of this slump, no matter what is said about our low debt-to-GDP ratio. We have little savings to draw on as the Excess Crude Account is almost depleted. Our sovereign wealth fund is not robust enough, especially its stabilisation component, to any difference. The external reserves managed by the central bank consist mostly of money already spent. In all likelihood, things will get tighter as the easy options for meeting government obligations will be limited to borrowing or printing money. Both options are not cost-free. Before long, all sectors of the economy will start mimicking the public sector because our economy revolves around oil money. Tough times are back. And, save for a miracle, they are not likely to disappear in the near to medium term.

This puts the incoming administration in a very tight spot in two significant ways. One, it will struggle to keep basic government operations going because of inherited problems. Two, it will find it very difficult to implement the ambitious social programmes it campaigned and got elected on. My hunch is that, after taking over, the Major General Muhammadu Buhari (rtd) administration will discover that the treasury is even in a worse state than they had imagined. There will be the temptation to keep blaming the outgoing government or to favour politically agreeable options ahead of far-reaching ones. To be sure, Nigerians should not be left in doubt about the extent of the inherited mess and enough attention should be paid to politics. But doing just these would not do. This is the to take and implement tough decisions about our economy. And since the incoming government campaigned on the platform of change, it should take the initiative to implement bold changes that will put our economy on the path of sustainability.

I think the place to start is for the Buhari administration to put on hold, by three to six months in the first instance, its ambitious welfare programme such as the school feeding programme and stipends for the unemployed, the elderly and the poor. I am aware of recommendations about funding the social welfare programmes through savings from wastes and leakages. This is not a bad idea. But I am sure such recommendations were made before it became clear that even the federal government is borrowing to pay salaries. I am also aware that suspending welfare spending will have serious reputational and political costs for the new government. The All Progressives Congress (APC) included those promises in its manifesto and its candidate incorporated them in his Covenant with Nigerians.

The new opposition, the Peoples Democratic Party (PDP), will soon recover from its present disarray and will definitely get on ’s case. It has all the incentives to do so. Those who voted for APC, especially those led to expect that they will wake up to Eldorado on May 29, will feel deceived and possibly become angry. Those who didn’t vote for APC will find additional justification, and they will possibly become strident critics of the government even before it gets off the starting line. Some civil society groups are gearing up to hold APC to its electoral promises, and will possibly swell the rank of the opposition to the Buhari administration if it backs out of, or fails to fulfil its promises.

Despite all these, I think it is a sensible decision to take. The country has suddenly found itself in the unenviable situation of a parent who promised his/her kids a summer holiday abroad but has lost his/her job. Sure, it will be tough on the kids, but it is more sensible to use available resources for school fees and to put food on the table than on some holiday. Even reasonable kids will understand the need for that kind of trade-off. I am a strong believer in the welfare state, not just because it is good for income redistribution, social mobility and national cohesion but more so because when properly implemented it enhances the productive capacities of citizens and the country. But you can only redistribute what exists. Let’s face it: a country that is struggling to pay salaries needs to stabilise first.

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The second hot-button area is removal of subsidies on kerosene and petrol. The inflationary impact of subsidy removal and the possible disproportionate effect on the vulnerable cannot be denied. But it is also clear that subsidies on kerosene and petrol have turned out to be an inefficient and unsustainable use of scarce public resources, as most Nigerians buy these products way above the official prices and we end up subsidising those who do not need subsidy. Most important, the subsidy regime oils the path to barefaced corruption. In 2011, we spent about N1.5 trillion on petroleum subsidies. That was about a third of the total budget for that election year, and way above the total capital budget. The subsidy in the 2015 budget has come down drastically to N145.2 billion. It is tempting to allow it to stay. But it is precisely a like this, when the subsidy element is low, that the inefficient, badly targeted and the corruption-ridden subsidy should go. Today, most Nigerians are buying petrol at around N150, more than the full landing cost of the product. The real beneficiaries of this failed policy are the briefcase billionaires.

The fact that this is another sensible thing to do does not mean it would not be resisted or that it won’t come with political costs. Subsidy removal is always an emotional and political issue. Resistance should be expected not just from individual citizens but also from labour unions, the media, civic groups and the official opposition. To reduce the resistance in these two contentious areas, the incoming administration needs to design and implement a robust strategy for engaging Nigerians in honest and open conversations about the state of the economy, the options available, the inherent opportunity costs, and the possible trade-offs.

I believe the credibility of the government to engage in these conversations and its capacity to implement important reforms will be strengthened by the sacrifices it is willing to make especially early in the life of the administration. There are already some signs that the Buhari administration might align itself with the demands of the austere times. The inauguration committee has said the party will not undertake a flamboyant inauguration ceremony. The president-elect was sighted in an airport shuttle bus and he was pictured having a modest breakfast with his running mate and his party chairman. All these are good for the optics. But beyond symbolism, it is important to reduce the drag that government has become on public resources. There are many obvious candidates for the knife: the number of ministers and presidential aides; the salaries and allowances of public officials, including legislators; the budget for food, entertainment and travels; the number of cars and aircraft in the presidential fleet etc. Buhari promised to lead from the front. Let him start with cuts that directly affect him and others at the top.

In addition to these short term measures, there is need to undertake some urgent reforms that will check graft, reduce impunity and promote efficiency. We also need to restructure our economy in the medium to long term. Any economy that is dependent on commodities will always be vulnerable; any country that uses 70 per cent of its budget to fund recurrent expenditure will always be in ill-health. Beyond the issue of subsidy, the oil sector is totally dysfunctional and cries for roots-and-branch reforms. of swaps, discretion, metering, industrial-scale theft, and opacity need to be urgently addressed, whether the Petroleum Industry Bill is passed or not. Oil sector reform will also come with resistance, including from some members of who think it is their turn at the trough.

There is also need for better revenue collection and remittance. Value Added Tax possibly needs to go up and personal and company income taxes need to be more aggressively collected and rendered; waivers, which rob the public of significant revenues, need to be significantly reduced, if not eliminated; revenue generating agencies should be made to pay all they generate into the Federation Account, rather than becoming slush centres and separate islands of government. And then for the much talked about diversification, we need special interventions and incentives to boost physical and human infrastructure and make services, agriculture and manufacturing the major pillars of our economy.

To get us out of this avoidable tight spot, Buhari needs to make some tough calls. There are no easy choices and some pains, not discussed or disclosed or anticipated during the campaigns, will have to be inflicted. It is not an easy to be a president. But it is precisely at times like this that real changes can be made in the lives of nations.


Op-ed pieces and contributions are the opinions of the writers only and do not represent the opinions of Y!/YNaija.