Before We Tighten Our Belts – By Arnold A. Alalibo

Posted by admin Arnold Alalibo, Articles, Columnists, NNP Columnists Wednesday, January 7th, 2015

By Arnold A. Alalibo | NNP | Jan. 7, 2015- The Finance Minister and the Coordinating Minister of Nigeria’s Economy, Dr. Mrs. Ngozi Okonjo-Iweala, harped on Nigerians recently to tighten their belts. The sudden pronouncement of an economic adjustment programme for the country has become quite a talking point. The federal government had on 16 November 2014 announced a package of austerity measures as part of fiscal adjustments to mitigate the negative impact of lower global oil prices on the Nigerian economy.Unveiling the measures, Dr. Okonjo-Iweala said the belt-tightening initiative was the first of other policies the government would implement if the fall of oil prices persisted. Oil prices have declined by more than 30 percent since mid-June this year. Recent forecasts indicate that the lower prices may well continue into 2015. This is also in addition to the fact that the price of the Nigeria’s premium oil, Bonny Light, has dropped.
An immediate result of the sliding oil prices is a six percent downward revision of the 2015 budget to $73 per barrel from the earlier $78 on which the budget was drawn. The new benchmark is based on the 2015-2017 Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper. Nigeria is expected to produce 2.27 million bpd next year with projected revenue of N6.8 trillion. The austerity measures the government reeled out include a restriction on foreign trips by public officials, while local trips will be curtailed drastically. Exceptions apply only to absolutely necessary travels. Also, taxes on luxury goods will be reviewed upwards. Nevertheless, the government has been so gracious enough to exclude salaries of civil servants as well as key initiatives in education, health and other critical areas vital to the development of the country.

Since oil proceeds account for over 70 percent of Nigeria’s fiscal revenue, a shortfall in the projected benchmark inevitably affects revenue projections. For instance, financial records for the second quarter of this year show that government’s retained revenue decreased to N864bn from N912bn in the first quarter. The bad news for Nigeria is that both the present and successive governments have not been prudent enough to save for the “rainy day”. Neither were they able to build external buffers in times of dwindling revenue to the nation. How can one explain a situation where the government was unable to save anything while oil boom lasted for several years and now we are asked to tighten our belts?
However, if the austerity measures must be, extreme caution and deep introspection must characterize their implementation in order not to imperil the well-being of the people. Indeed the volatility in the global oil market gives one a cause for concern, especially for countries like Nigeria which entirely depends on oil for their sustenance. This is a wake-up call for us to diversify the economy through alternative and additional sources. It is time to channel energy to non-oil sectors as potential revenue earners. Agriculture and solid minerals are two vital sectors that need to be better explored than is being done now. Before the austerity measures commence, the belt-tightening must begin with government and its top officials, who should be more prudent and financially disciplined. The situation also presents an opportunity to curb wastages in government.

While the austerity measures may seem like the most viable option in the circumstances, the authorities have to desist from pressing the panic button that could erode confidence in the economy or introduce measures that could end up as an exercise in futility.That is why the federal government’s plan to increase taxes through the Federal Inland Revenue Service (FIRS) as one of the means to fund the budget deficit should be well thought-out given the low tax compliance of many companies in the country. The truth is that the tempers of the times require government’s absolute commitment to the bailing out of the nation’s economy in the shortest possible duration and this has to be done with a human face. Utmost caution must be employed here because austerity could further enrich the affluent while impoverishing the average citizens thus leading to mass protest.
Austerity can also weaken aggregate demand, deflate an already fatigued economy such as ours and lead to the closure of industries with attendant job losses. These are situations we can still avoid at these critical times that general elections are only about two months away. Prudent management of resources as well as renewed focus on the non-oil sectors have become imperative to build a future with less dependence on oil as the main source of government revenue.wp_posts