Most of the banks prime lending rates now are close to 30%; you can’t borrow at that rate to survive.” Instead, he said what government needs to do is to restructure interest rates regime, while taming inflation so as to be able to drop its rates. He also reiterated the need for “NNPC to be restructured and refocused in terms of oil production, make necessary investments and resolve the insecurity problems that are leading to oil theft.
Nigeria is obviously, at a precipice especially in terms of the economy. With daunting debt profile, high rates of unemployment, inflation and frightening level of poverty, the country needs an urgent intervention by the incoming government. As bad as the country’s debt profile is, the Minister of Finance has been quoted several times to have said that Nigeria needs to borrow more to get out of its economic woes. Experts like Tilewa Adebajo disagree.
As an economist, Adebajo is of the view that “Nigeria can no longer sustain this debt profile. “ Nigeria’s official debt profile according to him, is “about 100 billion dollars, but if you add other financing that is not on the books, it’s close to 200 billion dollars. “Debt to GDP is not the way forward. In Nigeria, 96% of our revenue goes towards debt service; that is where the problem is and you can no longer continue to finance a deficit economy except you want to go the way of Venezuela or Zimbabwe. That’s where we are headed if we don’t make the right choices.
“We need to restructure our debt internally before we are compelled to do so by the Paris and London Club debtors as to what’s happening in Ghana now. The debt level in Nigeria now is clearly unsustainable.” Adebajo who is the Chief Executive Officer of the Creative Financial Group, CFG Advisory, noted that things are that bad because “there’s no bank that will give you money when you’re using 96% of your revenue to service debt; we cannot continue to borrow to pay salaries over the last six years; it’s not sustainable.”
Speaking during an interview with Arise TV, Adebajo said the problem is that the “Nigeria economy is valued at about 1 trillion dollars in GDP output but unfortunately, because of the structural issues we have, and mismanagement of our economy, we are only operating this economy at 40% capacity. Our GDP is just about 400 billion dollars instead of being in trillion dollars. At a point, our GDP was almost 600 billion, we’ve lost a hundred billion of our GDP in the last six years.” The biggest challenge for the incoming government for him, is the debt profile even as he questioned how a Bola Tinubu government plans to finance all the policies in the Renewed Hope agenda.
“Government budget for this year is 20 trillion, the revenue is 10 trillion with a deficit of 11 trillion. And he needs to know how he plans to finance that deficit of 11 trillion. If you remove the subsidy which is 15 billion dollars, you use exchange rate of 430, you still have about shortfall of 4 trillion to finance.” While the removal of fuel subsidy seems imperative, its not certain whether the incoming government would do so considering that successive governments have tried in vain in that regard.
He however suggested that to remove the subsidy, “government would have to look at three critical institutions; the Central Bank of Nigeria, Ministry of Industry Trade and Investments which is somewhat overlooked but has 18 critical parastatals that can significantly impact trade and investment policy. “Right now, there is a misalignment of trade policy and fiscal policy. So, within those three institutions, you need to restructure them, put the right people in place and have a coordinating person within the presidency or the president himself to coordinate the three ministries very well.”
The removal of subsidy he stressed, “will free up 8 trillion naira that will be used to reduce the deficits and restore confidence to being able to raise money on the markets”, adding that “one critical issue that is most important in an economy is confidence; it wakes up the financial markets and investors, the expansion brings about growth.” He also suggested that Nigeria needs to repair its international credit rating and implement structural reforms.
Critical issues he said, should include the NNPC. “NNPC has not been remitting funds into the federation account for some years, they claim oil is 100 dollars per barrel, and so they are using all that money to fund the subsidy. “So if you remove the subsidy, that money from oil revenues becomes available. Depending on the exchange rate you have money available- between 8 and 10 trillion can be available once you stop the subsidy.
“We’ve been on subsidy matter for over 12 years and have seen the consequences and if we don’t take this decision, we’ll be heading the way of Venezuela or Zimbabwe. “Let’s understand when the Dangote refinery is going to come on stream, that’s very important because if we have local production you won’t have much problem. “The problem is our refineries because we are one of the largest oil and gas producers in the world but we cannot refine our petroleum products. We need to do something fast about those refineries very quickly.”
The first task before the incoming government according to him, “is to stabilise the economy within the first six months and understand the depth of what the problem is. The immediate challenge is to run out the budget for this year, set up his economic management team to be able to see the economy through the end of the year, then, prepare his own budget, his initial budget for 2024 with a renewed economic plan based on that. The level of unemployment and number of underemployed youth for him, is the saddest part of what’s happening in Nigeria “because that’s where we have 1trillion dollars economy underperforming while 130 million people are also in poverty.”
“What is important with job creation is to grow the economy. You need to let go of airports concessioning or infrastructure privatisation of assets and open up the economy, so that these structures can begin to generate jobs. The mixture of high inflation, high unemployment and economic stagnation are undermining Nigeria,” he added. On World Bank and IMF recommendation that Nigeria should raise interest rates to tackle inflation, Adebajo said, “I talked about a misalignment with monetary, fiscal and trade and investment policy, so if you want to grow your economy and move out of poverty and create jobs, you cannot have interest rates at 18 to 20%.
Most of the banks prime lending rates now are close to 30%; you can’t borrow at that rate to survive.” Instead, he said what government needs to do is to restructure interest rates regime, while taming inflation so as to be able to drop its rates. He also reiterated the need for “NNPC to be restructured and refocused in terms of oil production, make necessary investments and resolve the insecurity problems that are leading to oil theft.
“Nigeria economy is well diversified; if you look at the budget this year, NLNG is bringing in good income, so why have we not invested in local LNG and Brass LNG; most of those two projects reach final investment decision but we’ve not had the will to do that.” While noting how critical private sector is in boosting the economy, he harped on the need for it to be encouraged with right environment, adding, “We need the right leadership, consistency of purpose and focus to provide the confidence that will drive the economy.”