President Muhammadu Buhari and Minister of Finance, Mrs Zainab Ahmed

Before the interruption: This article had been written before the #EndSARS protest, and was hurried dropped to focus on the reality of the time. Now that all the dust has settled we return to the usual drudgery of daily existence in a country where the story is mostly for the wrong reasons. Read:

From every practical economic indication, Nigeria has entered a debt trap, barring any unforeseen financial windfall. The budget 2021 clearly shows that the country can no longer fund its services and that debt and borrowing has become a veritable and indispensable option for funding government expenditure, including recurrent. It does not matter the garb it is dressed in, Nigeria has entered a dangerous and economically precarious situation that would require the best financial strategies and disciplined leadership to escape.

Late Dr. Ibrahim Ayagi, former managing director of Continental Bank, wrote a book by this title in the late 1980s at the height of the nation debt crisis, in which he drew attention to the dangers of accumulating debt which the economy may not be able to sustain. At the time he wrote, Nigeria was spending as much as 48 percent of its revenue on debt service obligations to both the Paris and London Clubs of creditors, and it was punishing to the economy, especially at a time of global oil price glut, which was as low as $12 per barrel and there was economic recession similar to our present experience.

He warned that it is suicide for an unproductive economy to embark on foreign debt accumulation, as the inability to service the loan – payment of interest like any bank loan – would imperil the economy given the law of compound interest, where the interest begins to produce interest in addition to the principal. At the time of the 1985 coup that toppled Gen. Buhari as head of state, verified Nigeria’s external debt was $12 billion from about $4 billion in 1983.

By 1999, when the military departed from power, total debt was $34 billion, after more than the original debt sum of $12 billion had be paid as interest; which interest was 42 percent of government revenue at a time when oil price was as low as $19 per barrel. It was a financial quagmire, which demanded the request for debt relief by the Obasanjo administration in 2005. Nigeria paid $12 billion for $18 billion to be written off.

Before 2015 when this government came to power, the economy had undergone some deep structural changes that were hailed by the major economies and multilateral agencies, which positioned the country as a main investors’ destination.

When President Obasanjo assumed office in 1999, he pursued a single minded policy of economic reforms, which involved reducing the size of government and introducing Public-Private Partnerships. Throughout the 16 years of implementing these free market policies, such as privatization and liberalization, the economy grew at an average rate of six percent, which was remarkable given the fact that the country was just coming out of crushing economic and political crises that crippled governance, especially with unstable oil price during the greater part of the1990s.

But all these seem like fairy tales now as the current government has virtually reversed all these policy gains and imposed command economy and state control where the federal government micro manages the economy and everything else. The reason, according to President Buhari, is that free market has been unfair to the north as it disproportionately benefitted the south because of their superior skill sets and enterprise.

So his government is consciously redressing the apparent and perceived economic injustice to the north by ensuring that it balances the interests by official intervention, which is evident in his appointments.

In five years of this government not one of the over 1000 SOEs (state owned enterprises) has been privatized even though government had listed the sale of some since 2017 as part of its revenue sources to fund the budget; and this has further compounded the recurrent expenditure challenges and the unwieldy nature of the public service. Indeed, government has in five years created 50 new agencies to benefit his people. He continued to pay fuel subsidy even after disavowing it until he had no money again to pay for it; and spends N62 billion on moribund refineries.

Today, the debt stock has almost triple at $112 billion or N31 trillion from N11 trillion in 2015. This has been made possible by the borrowing spree of this government, ostensibly to fund its social oriented policies, such as school feeding programme, N5000 Cash transfers, Agriculture funding, etc which appeal to his mass base, as the economy plummets. Taxes have been flying everywhere and nothing seems to escape the thirst for tax revenue to cushion the rising deficit; and with taxes come inflation and more poverty.

Also the Central Bank of Nigeria has been defending the naira with the consequent depletion of the foreign reserves, because, as President Buhari said in 2016, he would not preside over the killing of the naira. Well, he can say that again! By 2019, the CBN had spent $34 billion defending the naira. The capital market which had boomed before this government has fallen into its longest lull in recent history simply because of investors’ perception and lack of confidence in the government.

Buharinomics is a policy borne out of anger and vengeance against a part of the country; and its thrust is obsolete, retrogressive, and poverty inducing, and evidently not the way forward. In just five years of Buharinomics, poverty rate has grown from 42 million Nigerians in extreme poverty in 2015 to the present 92 million, making the country the poverty capital of the world.

Ironically, the people in whose interest the government is pursuing such ruinous policies are the worse affected, because of their lack of skills and exposure. As the economic space is narrowed and restricted further by the government, access and opportunities also shrink for many Nigerians. So the rate of poverty has been inversely proportional to the unwanted encroachment of government in the economy. As much as 78 percent of government revenue goes into recurrent expenditure. Since coming to power, government has borrowed all his capital expenditure.

And the ongoing #End SARS protests are evidence of the mood of the country, as youths who see no future in government policies, use the impunity of SARS, the notorious police unit charged with curbing violent crimes, to vent their spleen. Pinning hope on the government stimulus plan of N2 trillion is like expecting rain in the desert. It is hard to see the usefulness and viability of the stimulus package, when the funding need of the economy to escape the looming recession is projected at N12 trillion.

This government obstinately insists that the country has the capacity to continue borrowing. It believes that by debt per GDP ratio, which is presently at about 26 percent, Nigeria can borrow up to 48 percent of Debt to GDP and still be within the 60 percent threshold. China, for instance, used to have about 150 percent debt per GDP and was growing at about 10 percent. This is usually the argument of more-debt proponents. However, the major challenge is the revenue earning capacity, which by Mr. Buhari’s admission in the 2021 budget, is 68 percent in 2020.

This cannot be confident position to continue given that President Buhari has only two effective years in power left, and his successors will be saddled with the problems. The issue is simple: Any individual or organization faced with dwindling revenue or income does one of two things – reduce cost and improve revenue. Both this government has not done; but continues to borrow, which could never solve the problem of revenue shortfall.