Expert, minister disagree on govt’s GDP growth target for 2019

Economic expert from the Lagos Business School (LBS), Dr Doyin Salami, has flawed government’s GDP growth projections for 2019 saying with adverse global and domestic headwinds, it would be difficult to achieve any significant growth this year.

The Minister of Budget and National Planning, Senator Udoma Udo Udoma, had said that the country’s gross domestic product (GDP) growth would increase to 3.01 per cent in 2019 despite obvious economic headwinds.

He said, “With sustained implementation of the Economic Recovery and Growth Plan (ERGP), government expects the economy to maintain steady recovery with the GDP growth increasing from 0.8 in 2017 to 2.1 per cent in 2018 and 3.01 per cent in 2019.”

Last year, the government had targeted GDP growth rate at 3.5 per cent but ended up at 1.81 per cent as at third quarter (Q3) ended September 30, 2018, which outcome the minister blamed on the National Assembly for late passage of the 2018 budget into law.

Speaking at “Deloitte Nigeria Dialogue on Economic Outlook 2019” in Lagos, Udoma also projected inflation rate to drop to single digit of 9.98 per cent in 2019 from 11.44 per cent as at December 2018, on expectation of improved coordination of fiscal and monetary policies, improved oil earnings and capital flows into the economy.

Overall, he said, government expects more diversified and inclusive growth in 2019 and over the medium term, stressing that government was committed to growing the economy which he said is the basis of the 2019 budget designed to support and partner with the private sector.

But in his presentation titled, “Global and Nigeria Economic Outlook for 2019,” the Adjunct Lecturer, Lagos Business School, noted that the USA budget deficit forecasted at $973 billion for 2019 (over 18 per cent rise from year 2018) implied there is going to be higher interest rates globally in 2019 which in turn would drive inflation and impact on GDP growth rate.

While lamenting that Nigeria had significantly performed below African average, Dr Salami suggested that government must increase taxes or increase fuel prices if the country must stem excessive borrowing for capital expenditure.

“Nigeria cannot afford a situation where industrial capacity is as low as it is. Our industry must contribute a quarter or three quarters of GDP for us to grow,” he insisted.

He also warned government against continued borrowing under the guise that its debt ratio to GDP was lowest among peers even when government’s revenue was quite low in relation to increasing debt burden.

“Nobody pays for debt from GDP. Debt is repaid from revenue,” adding that “if government is going to create jobs in the way to address critical unemployment and underemployment rate, then the country’s industry (excluding oil) must contribute around a quarter or a third of GDP.”

He also warned against unrealistic budget expectations as regards oil production and prices in 2019, insisting that the figures were unrealistic.

“OPEC’s quota for Nigeria’s oil in 2019 is 1.6m bpd but the 2019 proposed budget states 2.3m bpd who will fund the deficit?” the university don wondered.

Defending government’s forecast, the Minister of Finance, Mrs Zainab Ahmed, said government had the capacity to service its huge debt and that “the authorities are constantly monitoring external headwinds against the local economy and will adjust accordingly.

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“Our debt level is sustainable but debt service is high compared to revenue collections, indicating the need to prioritise revenue generation. So, we are prioritising revenue generation, and by so doing the Federal Government of Nigeria (FGN) intends to continue significant investments in human capital & critical infrastructure to sustain the growth trajectory,” Mrs Ahmed said.

In her presentation titled, “Revenue Growth & Economic Development: Expectations for 2019”, Ahmed noted that the country needed to work toward improving its non-oil revenue generation to boost infrastructural and human capital development investments.

She however pointed out that the nation’s tax revenue to GDP ratio remained too low when compared to peers in Africa and across the world.

According to her, it was important for the country to boost its revenue to be able to deliver on ERGP target for socio-economic development, saying that the Federal Government had embarked on measures that would help actualise the goal of higher revenue generation.

“Given the low revenue to GDP ratio currently at about 7 per cent, we must pursue optimal revenue generation. We still need to do more to achieve higher revenue target.”