Renowned economist and Chief Executive Officer of Financial Derivatives Company, Bismark Rewane, says that to create the necessary breathing space for the local economy in these trying times, the Nigerian government should meet with the International Monetary Fund (IMF) and other creditors for a restructuring of the country’s debt.
Speaking on an Arise TV programme Thursday, Rewane said the Federal Government’s expenditure was declining due to exchange rate pressures and a failure to optimise growth.
On President Bola Tinubu’s budget presentation to parliament on Wednesday, Rewane said, “In terms of productivity, I do not think that this budget actually addresses the issue of productivity because you need to debottleneck the economy because there are constraints and impediments to growth and these impediments include bureaucratic bottlenecks, civil service lethargy, obstacles to productivity, roadblocks, and many other things.
“But the reality is that the Federal Government finances only about 52 to 54 per cent of total fiscal financing in Nigeria. The state and local governments have another 48 per cent, so to speak.
“And if you think the Federal Government is even fiscally prudent, which I think they are compared to the states, the state governments finances are pretty much bizarre, what I would call extremely fragile and failing state, than what is happening in the Federal Government.
“So, when you now begin to take the borrowing environment, we want to test these assumptions and tell you that if interest rates are going to increase, as I’ve heard the Central Bank governor say, then the debt service we are projecting today, I am not so sure that it has taken into consideration the fact that these interest rates will increase.
“But what gives me comfort is that I think eventually, we will come to the realisation and have to accept it whether we like it or not, inconveniently for that matter, that we will have to meet with our creditors, including the IMF, to restructure our debt to give us some breathing room, because the economic frustrations that are going to be let out on the street by people who are paying higher prices for the problems that we see today may not be bearable.
“So, it is almost imperative, almost inevitable, that we have to restructure our debt, and that will give us some breathing room to invest, one, in capital expenditure, two, to increase productivity, and more than anything else, achieve accelerated and optimal growth.”
Analysing the contents of the budget, Rewane pointed out five things to look at in a country’s budget.
“One, how much are you going to earn? This time, we are projecting to earn N18.32 trillion, up significantly from what it was in the past. Why? Because the price of oil, the exchange rate at which we are going to convert the oil processing, and then also, mobilising the corporate income taxes and all that.
“On the other hand, how much are we going to spend? We are going to spend N27.5 trillion. This is significantly higher, it’s about almost 25.9 per cent, I think, up from last year. Then, how much is the deficit? The deficit is about N9.18 trillion, which actually is about 3.8 per cent of GDP.
“Last year, the planned deficit was about N6 trillion. In actuality, we did about N7 trillion. So, this budget is a modest, prudent budget to that extent,” he said.
The renowned economist revealed that while there was a 25 per cent increase in naira terms, there was a 14 per cent drop in dollar terms between 2022 and today, as the peak in dollar terms in 2022 was $33 billion, while 2023’s peak was $23 billion.
“In reality, Nigeria’s expenditure, and that’s Federal Government alone, is actually declining because of exchange rate pressures and failure to optimise growth,” he said.
Referring to the exchange rate of N750 to a dollar in the budget, Rewane said, “If that is the budget benchmark exchange rate that we are going to use throughout the year, it is hoped that with the reforms, the exchange rate will begin to move to where it is purchasing power per relative value.
“This is about almost N800 to a dollar. If that assumption fails to materialise and there is evidence to show that it might not materialise, then you begin to create elements of macroeconomic instability. But having said that, the people that crafted the budget were pretty realistic in so doing.”
