FEDERAL government has finally decided to introduce some austerity measures despite its recent claim that the drastic drop in global oil prices will not affect the economy negatively. The measure is meant to insulate the economy from the crashing oil price in a bid to balance economic growth. In this vein, government has already scaled down crude oil bench mark for the 2015 budget from $78 to $73 per barrel. Simply put, governments at all levels will have to cut cost of governance in order to cushion any effect which the dwindling oil price may engender.
Austerity measures are strict channels that are undertaken by a government to help bring expenditures more in line with revenues. It is usually official actions taken by the government, during a period of adverse economic conditions, to reduce budget deficit using a combination of spending cuts or tax rises. In this vein, the Nigerian government has decided to be prudent in its spending while also mandating tax agencies to rake in more revenues in order to endure this period of lowering crude oil prices in the international market.
Coordinating Minister for the Economy and Minister of Finance, Dr. Ngozi Okonjo-Iweala explained that the decision to cut revenue projection was part of measures designed to maintain economic stability, boost non-oil revenues further, plug loopholes and waste, as well as cut unnecessary expenditures in order to cope with the situation. The minister emphasised the need to make needed sacrifices in order to face the serious challenge confronting the country with regard to the crashing of oil price globally. As expected, the government also promised to continue the funding of infrastructures in agriculture, human capital development and especially the health and education sectors.
The government vowed to stop foreign travels by civil servants unless for purposes that could be fully defended as absolutely necessary. More so for the time being, the government has also decided to stop foreign training programmes, all in a bid to curb wastage and cut excessive expenditure.
Already, states and local governments are feeling the pangs of dwindling oil prices with a commissioner for finance quoted as likening the situation whereby “you have been taking tea and milk before but you can now use only Lipton with warm water and drink it until the situation improves”. Many other state governors have also had to abandon some capital projects because of need to minimise spending. Furthermore, local government council officials now have to wait a little longer for their salaries and other entitlements.
Federal government proposed a budget of N4.495 trillion for the fiscal year 2014 based on oil benchmark of $74 per barrel. Fortunately, oil had sold far above the projected oil benchmark in recent times. As late as August 27, 2014, oil price was just below $103 per barrel for October delivery, meaning that government made at least $20 extra on each barrel sold in the past 20 months or so. With this fact, it will be safe to say that the Excess Crude Account which was created in 2004 to act as a buffer against anticipated shortfalls in Federal Government revenue from oil and other income sources shouldn’t be short of cash within so short a time.
Surprisingly however, even by October end, government was already scampering for various austerity measures to cushion the situation. Okonjo-Iweala was quick to announce that states were canvassing for the sharing of money in the Excess Crude Account (ECA) resulting in the depletion of the account from $9 billion to $2 billion last year. This is the clearest indication yet that there is little or nothing to fall back on despite posturing by the minister and other senior administration officials.
In itself, austerity measures are not a problem but the issue is whether the government is sincere about the whole idea. These measures can be forced down the throat of a country if for instance it defaults on its debt and obtains a loan from the International Monetary Fund. They could also be voluntarily implemented to bring deficits down like in this case of Nigeria.
On January 1, 2012, President Goodluck Jonathan made an unpopular effort to cut costs by removing subsidy on the pump price of fuel. Despite the crisis, protest and strikes that followed the government succeeded in partially removing the subsidy. This was accompanied by mouth watering promises of good social amenities and needed infrastructures. This is 2014 and the scandal that rocked the subsidy regime has not been resolved. The subsidy scandal which was regarded as one of the biggest in the nation’s history included bribery of lawmakers by oil moguls.
Governments have also indulged in extra budgetary spending on non essential issues considered as wasteful by economic experts. One of such numerous wasteful spending was that involving Minister of Petroleum Mrs. Diezani Alison-Madueke. Earlier this year, the House of Representatives raised an alarm and consequently passed a resolution for the probe of the minister who was accused of spending about N10billion of public funds on the maintenance of a Challenger Jet for her private use. Barely a week after, the House said it also discovered that in addition, Alison-Madueke maintains another jet for international trips only, retained for about +600,000 per trip.
A similar scandal happened in 2013 when former Minister of Aviation, Ms Stella Odua was indicted by a presidential committee for spending an unbudgeted N255m to purchase bulletproof cars. In October of that year, there were reports that with the approval of the Minister, the Nigerian Civil Aviation Authority purchased two bulletproof BMW cars at an allegedly inflated rate of N255m. After much public pressure, Odua vacated her office but was never punished for the infraction.
These amongst other unsavoury scams have fractured the economy in recent years. Also Nigerians have not forgotten about the letter written to President Jonathan by the former Governor of the Central Bank of Nigeria, Mallam Sanusi Lamido Sanusi, alleging non-remittance of about $50billion crude oil sales receipt to the nation’s coffers. The letter alleged that the Nigerian National Petroleum Corporation (NNPC) “failed since 2012 to account for nearly $50bn in crude oil sales that should by law have been remitted to government coffers.”
History also shows that Nigeria has not learned from the consistent inconsistency in the global oil market. Statistics indicate that in spite of the huge oil revenues made over 40 years, Nigeria has since 1979 been facing a balance of payment crisis. Economic analysts observed that these decades witnessed a high level of mismanagement in the economy. This is due to the fact that there was a lot of importation and extravagant spending during the oil boom. This in fact led to the massive drop in the value of Naira. Furthermore, decline in oil price always catches the nation slumbering with government scampering for the best fiscal and monetary policy solutions.
The Structural Adjustment Program (SAP) by the regime of General Ibrahim Babangida (IBB) left an indelible mark of hardship on the citizens. Records have it that, IBB’s implementation of his Structural Adjustment Programme (SAP) during his eight year rule destroyed the civil service. At that time, the middle class fizzled out of the economic system and civil servants, once looked up to by society as torchbearers lost their prestige. They were no longer able to ride cars or send their children to prestigious schools.
Other administrations whether military or civilian have over the years also introduced one form of austerity measure or the other but unfortunately none achieved desired objectives. Eventually, oil prices rebounded and life returned always to status quo ante.
Apart from the problem of the lack of foresight and strategic plan towards local refining and petrochemical activities, there are also issues of lack of formidable legal framework such as the Petroleum Industry Bill (PIB), and continuous huge importation of refined products. More so, the excess crude account created to cushion the economy at difficult times has never been allowed to accumulate by stakeholders.
Civil society groups and other concerned Nigerians have suggested that, instead of introducing austerity measures likely to further impoverish and inflict more pains on the people, it will be more effective to first trim the size of governments by reducing the number of aides and excess officials. A state Governor once appointed over 300 personal aides! A civil society group further seeks drastic measures like reduction or removal of illegal allowances of lawmakers and the Presidential Air Fleet. These alongside other necessary sacrifices will go a long way in showing the government’s determination in implementing the austerity measures. This way, both ordinary citizens and government officials will have to sacrifice in order to insulate the economy.