Dr Obadiah Mailafia, a former Deputy Governor of the Central Bank of Nigeria, in this interview by SAM NWAOKO speaks on the fiscal situation of Nigeria, the mounting debts and a number of other issues.
Fitch predicted in March that the Federal Government would spend 395% of its total revenue on debt service by 2022. That is scary. What do you think will happen if we truly land in this trouble?
Yes, I heard of the Fitch forecast. It sounds quite dramatic, to be honest. To address this question, let us do some trend analysis. As of March 31st this year, Nigeria’s total stock of debt stands at at N33.107 trillion (US$87.239 billion in dollar terms). The external component of the total national debt stock stands at US$32.86 billion (N12.4 trillion). Nigeria’s current debt to GDP ratio is estimated to be 31.94 percent. It has almost doubled from a low of 17.4 percent in 2014. And as we speak, the National Assembly has approved yet another binge of borrowing worth billions of dollars. You do not use GDP to repay your debt; you use government revenue receipts to service your debts. In 2014, before the current APC-led administration came to power, the ex-President Goodluck Jonathan’s administration paid N500 billion for debt-servicing. This amounted to a mere 10% of total government revenue. We were in a relatively comfortable position. In the following year of 2015, coinciding with a global recession and precipitate fall in world oil prices, debt repayment bill tripled to N1.5 trillion, amounting to 30% of public revenue earnings. By 2017, the figure galloped to N3 trillion which amounted to 61.6% of government revenue. In 2020, government made a total of N3.25 trillion in revenue while spending N2.34 trillion in debt-servicing. This amounted to 72% of revenue going into servicing our loans for that year. It is instructive that during the same year government spent only N1.7 trillion on capital expenditure.
As of 2021, a recent budget implementation report indicates that the Federal Government spent N1.8 trillion in debt servicing in the first five months of the year, which represented 98% of total revenue earned during that period. From January to May, the government earned a total of N1.84 trillion in total revenue, a massive shortfall of the projected figure of N3.32 trillion. This obviously indicates that if the same trend is repeated for the rest of the year, we would be spending 98% of all revenue on debt-servicing. Interestingly, the 2021 budget allocation for capital expenditure stands at N3.4 trillion, which is 29% of the total annual budget. A situation where debt-servicing obligations outstrip capex allocation would be a rather worrisome one. All the above suggests that there is an accelerating trend in the rise of both the quantum of debt and in percentage of revenue that is devoted to servicing our repayment obligations. Judging by the laws of statistical probability, the change in percentage of revenue on debt-servicing is likely to rise very substantially in the coming year. But I do not think it is likely to reach the alarming figures that Fitch has put forward. However, they are right to ring the alarm bells. If that unhappy scenario should see the light of day, we would become a debt-distressed, insolvent nation. All our resources would be going to debt-servicing instead of building schools, hospitals and clinics – instead of building our infrastructures and ensuring a better life for our people.
Are there no alternatives to unbridled borrowing to fund capital projects as this administration is currently doing?
As long as humanity has existed, debt has been a fact of life. It has been suggested that the great Roman Empire collapsed partly due to failure to balance the public finances. The empire had over-extended itself and the process of imperial overstretch eventually impacted negatively on the public finances and Rome eventually went under. Empires and nations require vast amounts of money to fulfil core functions. Much of these resources have emanated from taxes, land resources. In medieval Europe, nations that were lucky to stumble on vast deposits of silver of gold did become highly wealthy. Taking loans is another way. Succeeding generations of English monarchs, for example, borrowed from banks and from rich individuals and financiers to execute wars and other national projects. The Bank of England, for example, was a private institution that serviced the monarchy by raising capital for military and other adventures.
Why do nations borrow? Nations borrow for a variety of reasons. They normally borrow to finance shortfalls and deficits in their budgets. They can also borrow during national emergencies, when, perhaps there has been a downturn in their economic and financial fortunes. Nations borrow also in times of war in order to buy weapons. There are also large projects that may require additional funding than cannot be provided for by the regular annual budget, for example, the building of a major dam or of railway networks or hydro-electric power project. Nations also borrow in order to deepen the financial and capital markets. Governments can issue bonds in order to develop the yield curve and to enhance the vibrancy of the capital markets. The sophistication of a financial system is often judged by the depth of its yield curve and the robustness of its primary and secondary markets. Sadly, also, nations can borrow because of imperialism. In 1979, Nigeria caved in under pressure from external forces to take a loan of $1 billion. It was a loan that we did not need and were, in fact, in a position to give ourselves. And yet our military government took the loan. To this day, nobody knows what that loan was used for. In the 1980s, during the heydays of structural adjustment conditionality-based lending, the IMF/World Bank forced all sorts of loans down the throats of African and other developing countries. Those countries were plunged into a debt peonage that took decades to redress. Nigeria is one of those countries that have taken so many loans. As your question implies, we are a highly endowed country in terms of natural resources and many people have been at a loss to explain why we have incurred so many loans over the years. There are good and bad reasons why countries take on loans. Prudence requires that governments ensure that they take loans only for good reasons.
From where I stand, I am of the humble opinion that much of our current loans are being taken for altogether bad reasons. We have loans that have been incurred for infrastructure that have never seen the light of day. A good example is Mambila Hydro-project. There is a frightening magnitude of profligacy and grand larceny. Mounting debts are bad for the economy, bad for the government and bad for our people. Sovereign debts are incurred in the name of all the people. For better or worse, all citizens are affected. There are hardly any countries that do not have one level of debt of or the other. One of the rare exceptions is Brunei, the small oil-rich Asian kingdom with a debt to GDP ratio of 0.36% in 2020. Most countries with debt to GDP of less than 20% are considered to be countries with very low debt. They include: Afghanistan (6.32%); Botswana (12.84%); Congo (13.31%); Solomon Islands (16.41%); UAE (19.35%); and Russia (19.48%). Ultimately, the real issue centres on the capacity of a country to service its debt. In the specific case of Nigeria, our debt has been mounting rapidly towards a dangerous threshold where debt-servicing obligations are threatening to outstrip revenues. We are a poor country. In a situation of rising debt, we may find that budgetary resources that could otherwise have gone into building infrastructures and developing human capital are increasingly diverted to paying our Shylock creditors. Secondly, debt exposes us to more risk. The external component of the debt exposes us to exchange rate risk. When the naira is devalued as against a rising dollar, we would need to earn more naira just to service our debt. Increasing debt servicing obligations tend to reduce the accretion on reserves. This in turn could further depress the exchange rate. This could send signals to external investors to lower their confidence level regarding our economy. The international rating agencies keep watching like hawks. When our financial and international position worsens, they would tend to lower their ratings. This can in turn increase the cost of borrowing. For developing countries, it is wiser to keep the level of borrowing rather low.
The late John Magufuli, former President of Tanzania, decided to reduce the level of borrowing to the barest minimum, with extraordinary results. He had been offered a $10 billion loan by the Chinese. When he saw that in the fine little print, they wanted to collateralise the Port of Dar es Salaam for 99 years, he turned down the offer. He decided to concentrate on boosting domestic revenue, drastically reducing foreign travels and rigorously implementing infrastructure projects. The results were outstanding. Tanzania was enjoying one of the fastest growth rates in the world without going through a binge of external borrowing. We in Nigeria have a lot to learn from the late President Magufuli. We must borrow only if we must. And such loans must strictly be for infrastructure projects that can pay their way while bringing real value-added to the economy. We should also cut back on the cost of government and plug some of the loopholes that haemorrhage our foreign exchange. We can make government work while living within our means and expanding the possibility frontiers of collective welfare for the teeming millions of our people. I would also urge government to cut back drastically on certain worthless expenditures while keeping a leash on the cost of governance. Government should also engage with our creditors with a view to restructuring our loans to ensure the fiscal space that will enable us to continue to grow while expanding the possibility frontiers of collective welfare.
President Muhammadu Buhari has been talking about removing 100 million Nigerians from poverty by 2030. Do you see this as realistic or mere wishful thinking?
Pure, unadulterated wishful thinking… As a matter of fact, a December 2020 report from the World Bank indicated that an additional 11 million Nigerians would fall into poverty by 2022. From the current figure of 90 million people, the population of our poor would rise to 109 million people. If there were any remote prospects of poverty, we should not be registering an additional 11 million relapsing into poverty. This trend is only partly due to the deleterious impact of the Coronavirus lockdown and its attendant effects. It is also due to rising insecurity, a looming agrarian crisis, a rising population of internal refugees and collapsing social capital. The misrule and follies of this regime have destroyed the economy and undermined collective welfare. In this farming season, millions of our farmers, particularly in the Middle Belt, are too scared to go their farms. They are scared of armed foreign mercenary bandits that are killing, maiming, raping and pillaging on a staggering scale. The government seems unwilling and/or unable to do anything about it. Millions are facing the prospects of hunger and famine.
Early in 2020, DPR said PMS consumption rate was around 38.2 million litres. By June this year, NNPC announced that this has increased to over 100 million litres due to smuggling. As a stakeholder in this country’s economic management, you should be worried by these figures. Are they real?
For decades, the entire petroleum subsidy saga has been the handiwork of Satan from the pit of hell. I am inclined to disbelieve the figures. Under current arrangements, NNPC has the sole authority to import refined petroleum. The whole process is under their control. If they are facing the challenge of smuggling, we should totally reverse the logistics and distribution arrangement. Under the current circumstances, the government is literally subsidising the whole of West Africa. And this cannot be right. What is currently happening is that higher prices in our neighbourhood and a weakening naira provide strong incentives for smugglers. The CFA, guaranteed by the French, is a semi-convertible currency. Naira has undergone a circle of devaluation in recent years. Under current path-dependence, I foresee further devaluation; and because of this unhappy situation, selling Nigerian oil in our neighbouring makes good business sense. If I were government, I would never tolerate such a situation. It is rather disappointing that the recent Petroleum Industry Bill (PIB) did not give sufficient attention to petroleum products distribution. We need to further unbundle this sector. We must impose market principles so that the sector can be more competitive. Continuing to import refined petroleum is a scandalous proposition. We must therefore urgently find practical solutions to this challenge.
How can government increase its revenue in view of the current level of inflation and poverty in this country? How do we tame inflation in Nigeria?
The worst government can do is succumb to the penchant of raising taxes and tariffs. This would amount to consummate folly in a time of economic doldrums. There is what we call the Laffer Curve in public finance theory. It is associated with the American economist Arthur Laffer. It shows that there is an optimal level where government can impose taxes. When you exceed that optimal level, you would, in fact, experience a disproportionate fall in tax revenue. This is more likely to be the case during a time of recession. The great economist John Maynard Keynes taught that in times of economic troughs, the managers of the economy should ensure that more money is placed in the hands of households, firms and businesses in order to boost aggregate demand. So, raising the level of taxes is not the thing to do right now. I would say expanding the tax net is the way to go. There are millions of Nigerians that are still not within the tax net. Using a combination of stick and carrot can help to put many more into the tax loop. Many countries collect taxes through lifestyle audits. When a man keeps a dozen exotic cars in the garage of his mansion and hires private jets for his travels, the authorities have a duty to do a lifestyle audit on him or her to ensure that their tax payments reflect their high lifestyle. I also think there should be a more rigorous system of accountability for the revenue-generating agencies of government – Customs, FIRS, NNPC and others. We hear many ugly tales of trillions being lodged in private accounts and so on. I suspect that trillions are being withheld for reasons that you and I cannot approve of. Boosting revenue in our circumstances would require also ensuring a sound macroeconomic environment and an attractive business eco-system that enables businesses to flourish. It is only when this happens that government will be in a position to tax them. Finally, we must learn to live within our means. The current operating cost of government is way too high. There are many lacunas and gaps that facilitate financial leakages and haemorrhage. These must be rigorously plugged.
As for the inflation question, it has been a worsening inflation in recent years. Inflation in recent years has risen to a high of 19% annually. According to the Economist Intelligence Unit (EIU), inflation in 2021 is likely to reach an annualised 17 percent. For the food sector, you can easily double that. The agrarian crisis has worsened food inflation in our country. Why is inflation a worry? It is so because it is a tax on the poor. It worsens the incidence of poverty. In the long-term, it destroys economic prospects a high-inflation economy undermines investments and long-term economic growth. Inflation itself derives from several factors and determinants: cost-push factors, falling exchange rates, insecurity, growing uncertainty and erosion of business confidence. If we had a proper government in place that has the confidence of the people, probably half of our inflation pressures would be gone. Good and prudent fiscal and monetary policies in a sound and stable environment are the best antidotes to high inflation.
Insecurity is making life very difficult for everyone in the country. The Emir of Kajuru was abducted right in his palace recently. What is the way out? What advice do you have for President Buhari?
Yes, we all heard of the kidnap of the Emir of Kajuru. It was a relief that the royal father was later released by his captors. But I hope you remember that the first-class Chief of the Adara people, Dr Maiwada Galadima, was kidnapped in even murkier circumstances. He had written to the governor of the state complaining bitterly of incessant harassment by armed Fulani militias in his kingdom. The governor gave him a date. He turned on the hour together with his wife. After waiting for several hours, he was told that the governor was not available. On his way back, he was kidnapped together with his wife and driver. His wife was beaten and raped in his presence. He himself was tortured mercilessly. The wife and driver were later released. A heavy ransom was placed on his head. The community struggled and managed to raise
the sum. After collecting it, his abductors killed the poor man in a very savage manner and left the body by the highway. That was on 26 October 2018. When the traditional council members of the Adara people cried wolf, they were summarily rounded up and imprisoned without trial for about a year. They were later released after pressures on the governor. One of those arrested, a retired Commissioner of Police, later had a stroke and remains bedridden. I suppose the trauma was overwhelming. The Adara have become a broken and traumatised people. We hear that the long-term goal is to impose Muslim Emirs in an area that was never conquered by Fulanis since the days of the Jihad of Usman Dan Fodio. During the week of 12 to 18 July, the Atyap people of Southern Kaduna were at the receiving end of a grave assault in which more than 100 people were killed. Entire villages have been razed to the ground. I was also in Ibadan in June, when murderous Fulani militias committed violent atrocities against the people of Igangan, Oyo State, leading to the death 20 people and the wounding of many more. Given these bloody scenarios, to be honest with you, the only way out right now is for local communities to defend themselves – take such steps as necessary to guarantee their own security. The hermeneutics and body language of this APC-led administration convinces us that they are in cahoots if not in sympathy, with the foreign mercenary bandits. Why is it that they are able to abduct Nnamdi Kanu, the leader of IPOB from far-away Kenya but cannot arrest any terrorist bandits under their own noses? We hear that they attempted to abduct Chief Sunday Igboho in Cotonou whilst about to catch a flight to Germany. We understand that the Beninois authorities have not caved in to the demands of the Nigerian government because lawyers have persuaded that Ighoho’s human rights are likely to be in jeopardy. It seems our government is quick to arrest people who are out to defend their people but are doing nothing against bandits and armed militias that are committing ethnic cleansing and genocide against unarmed and defenceless people. These double standards are injurious to social justice and the rule of law. Former President Olusegun Obasanjo spoke not too long ago about the hidden agenda of “Fulanisation”. We are now convinced that this is the name of the beast. If this is what they are pursuing, our duties shall be to resist them. Our laws, our constitution guarantees the right to self-defence. International law also prescribes that communities that face an existential threat to their survival have both a duty and a moral obligation to take such steps as are necessary to ensure their survival. This is an imperative necessity if the government is unwilling and/or unable to come to the defence of the people. These precepts are also in conformity with universal global ethics and natural law. I have no specific advice to General Muhammadu Buhari. The Buhari I knew was a gallant officer, a gentleman and a patriot. I do not recognise the one they call Buhari today. The doppelganger in Aso Villa is a remote, wooden idol with no heart, no soul and no humanity.
How do you see the 20 percent investment the Federal Government proposes to make in Dangote refinery?
If I understand it correctly, the NNPC’s 20% stake is in the order of magnitude of $3 billion. They later explained that they will make cash commitment of $1 billion while the rest is to be paid in kind, in terms of the value of $2 billion of crude oil. I am not in principle opposed to government investing in any profitable enterprise that it deems worthy of investments. My only worry is that since the economic reforms of the Obasanjo and Umaru Yar’Adua years, the general principle of public management is that government should as much as possible divest from the private sector. Secondly, the announcement came almost the same day as the PIB was finalised. Under the new bill, NNPC will be transformed into a limited liability company that will be fully operated on commercial principles. I would envision a future NNPC as a great business organisation such as Saudi’s Aramco, Petronas of Malaysia and Petrobras of Brazil. Such an organisation will need considerable capital for investments. I would expect NNPC Ltd to resuscitate its existing refineries which would be healthy competition with Dangote Refinery. I am a believer in free market principles, not in creation of oligopolies and cartels anchored on state capture. Having said this, we would have expected all the necessary spade work in terms of due diligence to ensure that investment in Dangote Refinery is justified from the viewpoint of guaranteed returns on investments. We hear that the project is suffering from unanticipated ballooning costs. And when Dangote recently announced that he is shifting 60% of his investment assets to the United States, ostensibly because of exchange rate risks, we must be more wary. Our people say that it is only the fool who continues dance on the market square after the drummers have departed. I wish the project great success. I pray for Dangote to realise his declared ambition to become the richest man in the world. I have nothing against him. I had lunch not too long ago, with a senior visiting European official who heads the trade ministry of her country. She expressed bitterness about Dangote being allegedly a monopolistic player who is succeeding only on the basis of an alleged state capture. We must be wary of people who make their fortunes by exploiting their linkages with government, where entire national policies are framed to favour a few businesspeople at the expense of the many. The Asian Tigers such as Singapore, Taiwan, Hong Kong and South Korea, built robust merit-based bureaucracies and shield precisely from such undue influences. This is why they could develop and manage transparent and neutral policies that serve the overall common good instead of the selfish ambitions of a few sharks, hyenas and vultures.
How can the CBN achieve a single exchange rate regime?
On the day they make up their mind to do so, they will achieve it. As of now, it is foolhardy to advise people who are not ready to do the right thing. And CBN is only partially to blame. I have always believed that our apex bank has lost its autonomy. It is under the stranglehold of the so-called cabal. It has become a victim of state capture. The foreign exchange regime is controlled by certain vested interests who are parasitising on the multiple exchange regimes for their own avaricious interests. I fear that the CBN has departed from its core mandate which should be centred on price stability, stability and integrity of the naira and ensuring full employment, growth and collective welfare.
Between restructuring and 2023 election, which would you vote for? And where do you think the next president should come from?
If I have to be honest with you, I am of the view that the crisis of nationhood we face today is so serious that restructuring is imperative if our country is to survive as a single corporate political community. I would go so far as to say that if we have to postpone the 2023 elections in order to have a transitional year for a restructured Nigeria, so be it. The irresponsibility of the current administration, its nepotism, callous indifference to human suffering and their impunity and wanton profligacy are threatening to destroy our country. The traditional fissures that characterise our body polity have become the gaping wounds of a bleeding nation. I kid you not, this country will break up if we continue on this self-same path of wickedness, cupidity and folly. Our wise elder statesmen from Chief Edwin Clark to Chief Ayo Adebanjo have warned that re-engineering our fractured federation is the only way to save the union. These are men of honour. They are patriots. They are not men given to flippancy. We ignore their wise counsels to our mortal peril.
As to where the next president should come from, I think that is less of an issue than what kind of president we need. We need a president who is a genuine detribalised patriot; a technocrat who understands world economics and the fundamentals of statecraft and the management of a national economy in a highly competitive global economy. The Southern Governors came out recently to demand that the next president must come from the South. The Arewa group came out recently to say that they are still entitled to another shot at the high magistracy of our great federal republic. Those of us in the Middle Belt are upset about this debate. We are caught in the middle. We are the bridge that links North and South. Both North and South are presuming that national politics is a ping-pong game between North and South. We in the Middle Belt are saying that we are the true Nigerians. We are in the middle and we are the bridge that links the Nigeria. Without us, there will be no Nigeria. As a consequence, we believe that the next president should come from the Middle Belt. Ever since Yakubu Gowon, no Christian Middle Belter has ever ruled our country. And you will agree with me that Gowon was and is a great patriot. Under, him, we fought a war to keep the union together. Gowon was a great and humane leader. His cabinet is unequalled in the annals of government in our country. The list includes: Obafemi Awolowo, Anthony Enahoro, Taslim Olawale Elias, Aminu Kano, Shehu Shagari, Okoi Arikpo, Russel Barau Dikko, Simeon Adebo. These men were giants in their own right. Nigeria was on the verge of greatness. We need another Yakubu Gowon who will mobilise our country in service of a grand vision and grand national purposes. A Middle Belt president will heal the wounds and the bitter suspicions between North and South. One thing is clear, nobody will trust another Fulani to rule this country, no matter how good and how liberal they are. The bitter wounds run too deep. As for the South, the North does not trust some of the people that are now parading themselves. We would love to see an Igbo president for sure, but for now, Northerners are asking: If you are demanding Biafra, how can we trust you with the presidency at the same time?
Southern governors recently met and resolved to outlaw open grazing of cows effective September 1 while they also told security agencies to stop carrying out operations in their states without informing them. How pleasing are these positions to you?
I do not think the word here should be “pleasing”. It is unwise to gloat over any situation because the wind seems to be swinging in our favour. Looking at things objectively, I am persuaded that the position of the Southern Governors is well within their rights. As the chief security officers of their domains, they have a right to demand that federal security operatives seek clearance from them before engaging in any operations that involve deployment of armed force. For example, they raided Chief Sunday Igboho’s home recently in Ibadan without Governor Seyi Makinde knowing about it. Two people were killed and Igboho escaped. We were told that some of the operatives spoke in French and with accents that were patently foreign. So, our own federal government can engage foreigners from neighbouring countries to come to the heart of Yoruba land and ransack and kill people in the home of one of the heroes of the youths. That is not only provocation, it is patently bad as far as public administration goes. I am also fully in support of their ban of open grazing. Southern Governors were elected by their people under our federal constitution to make laws for the good government and welfare of their people. Anti-grazing legislation falls within the ambit of such laws that Southern people want at present. At same time, nobody can begrudge Northern Governors for imposing Sharia and instituting Yan Hisba to enforce it. What is good for the goose is good for the gander.
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