MOUNTING DEBT: Why tax reforms may not solve Nigeria’s economic problems —Efem Ubi

Efem Ubi, Associate Professor of International Relations and acting Director of Research and Studies at the Nigerian Institute of International Affairs (NIIA), Lagos, speaks with IMOLEAYO OYEDEYI on how President Bola Tinubu’s administration can address the country’s economic downturn, which has resulted in its current heavy debt profile.

 

In the last three months, a total of N10 trillion has gone on Nigeria’s public debt, putting the whole profile at N87 trillion. What is your own assessment of the current debt burden?

From my own point of view, I will attribute the high debt profile to the low revenue generation of the country, which is a result of the non-diversification of its economy and overreliance on petroleum for livelihood as well as the volatility of the global oil market, which has also somehow shrank the country’s revenue. A part of it is also a lack of fiscal discipline in government expenditure and the depreciating currency. All these are what I think have resulted in the debt accumulation. More importantly, I also feel bad governance and mismanagement of government revenue have been contributing factors as well. So, if we are to get it right, I think we need to put in place the right economic policies and reforms that would give succor or enable the economy to thrive well.

 

But what do you think will be the implication of this huge public debt?

Well, the effects will be multi-faceted. The ramification is high, considering the fact that it is going to adversely affect the populace in the sense that the government may not be able to get more money to inject into critical infrastructure that will actually give impetus to a better economic environment for the masses. Much more important is the fact that it will undermine economic growth and development, because when there is no money as most of the meagre income you have and will have will be used to service the extant loans, it will drastically affect the domestic economy. You see, one of the important facts we should note is that the various loans and money that were collected by the government were not invested and used for the purpose for which they were secured. For instance, if the money borrowed were used to put in place productive infrastructure and the enabling economic environment and right policy are in place, they will attract investors. And the more investors you attract, the more money you have in the system. And this again will also give succor to this fluctuating currency value.

But beyond this, I simply believe the current situation is affecting the common man. Let’s even put aside the issue thrown up by the petrol subsidy removal. If you look at it vividly, a lot of businesses struggling in the country, and thousands of others have folded up, rendering a lot of people jobless and poor. The whole essence of the extreme poverty in the country which the president has alluded to is the fact that in the last eight years, the Nigerian economy has not thrived well. In the last couple of years, we have spent so much of our time looking for loans to pour into our economy, which has really destroyed it. In real terms, we ought to have used these last eight years to lay the groundwork for our economic growth and development because it is actually enough to do that.

 

But looking at the present state now, how do you think the current administration can get funds for next year’s budget without running to the bank to borrow additional loans?

You see, borrowing is not actually the problem, because there are a lot of reasons the government borrow, one of which is to build the infrastructural base, which costs a huge amount to put in place, which explains why the government borrows. But the fact is if we are actually borrowing the money to build critical infrastructure like good roads, rail lines, adequate electricity channels, and others, I think these will generate a lot of revenue to be recycled within the system; it will also create employment for the teeming masses. But this most times is not entirely the case. So, I think the government should simply diversify the economy and move away from total dependence on the oil and gas sector because we should not have to totally put all our eggs in one basket. Away from oil alone, I think we should also enhance and build our gas infrastructure. We should also create an enabling environment for businesses to thrive. This demands that we have the right economic policies.

Above all, I think the economic reforms should begin immediately under the current government. Though many people have believed that this thing will happen overnight, it is not something that can happen that way. Even four years will not be enough to turn around the economy, especially when one considers the various bleedings it has had in the past. So I think we have to give the government enough time and let it put in place those enabling environments and frameworks for the Nigerian economy to thrive. The thing there is when you put in place the right policies, to implement them, the government has to put in the right hand and mind to have a successful implementation.

I see agriculture as a sector that has the potential to employ a lot of people if effectively explored. So I think it is high time the government moved away from providing mere agricultural subsidies for the peasant farmers. We have to really move away from subsistent farming to cooperative farming. This means the government should form cooperative societies in the villages and local government and set up farming. It is all parts of poverty alleviation mechanisms.

Personally, I don’t really support the idea of palliatives, because they are just adjunct measures to reduce poverty. But they do not actually reduce the poverty, because the palliatives are just something that will last for a few days and end. So instead of the government talking about palliatives to reduce poverty, it should be talking about poverty eradication or alleviation. But this also cannot be sustainable if you do not have accurate data. We really need to have the population census again so that the government can have an accurate database of all Nigerians.

Through this database, the government can actually know the extremely poor people. And then, it can embark on what I call targeted poverty alleviation programmes. However, the availability of adequate data is the only way to do this. The data is needed at the state, local, and federal levels for ease of policy implementation.

More importantly, Tinubu’s government needs to think of industrialization and manufacturing. This is another vital area that can give succor to the domestic economy and generate appreciable income for sustainability. This means that the government should place better importance on science and technology because they are the bedrock of industrialization. And even our educational system has to be revitalised. It requires a holistic approach and not just concentration on a sector. We have often times placed so much importance on a sector of the economy, but there are other sectors therein. We have to revive them for development purposes. This is what is obtainable in advanced countries.

 

 In a bid to break the vicious cycle of overreliance on borrowing for public spending and the resultant burden of debt servicing, some people have said the government should privatise or sell off some moribund national assets to raise funds for fresh capital projects. What is your own take on this?

It all depends on what the government thinks about the asset or the infrastructure. If some national assets are moribund and the government feels, it won’t be progressive to keep them, I think the government can simply sell them off and rechannel the funds raised to some other productive areas that could add value to the economy. For instance, let’s take the oil refineries as a case study. If the government feels they can fix the refineries, why will they need to sell them? The government can just fix them, even if it will just be one of them in the interim.

But then again, one has to also look at the cost benefits of fixing the refineries and also look at the state of the refineries. Can the refineries be made to fit into the 21st-century technology after all? And then, if the government will be reviving the refineries, will it be just for the sake of domestic consumption or export? I think what we should look at in all is the cost benefits for the government and the people. I believe this is what will determine whether the government should either sell or keep the asset. What matters most is what will add value to Nigerian society and alleviate the suffering of the people.

 

President Tinubu’s administration has put in place a Presidential Committee on Fiscal Policy and Tax Reforms. What do you think should be the focus of that committee in a bid to generate revenue for the country?

Well, the use of tax reforms to diversify government revenue may not be sustainable in an economy like Nigeria for now. It is not something I really comment on or cherish. This is because if you want to reform tax, it is for what purpose? That is the question and who are those you want to be taxing? You know, when you talk about tax reforms and all, it is multifaceted. Is it that you want to create avenues that you want to be used to tax the people or what? Don’t forget that tax reforms are also one of the ways to attract or detract foreign investors. But the Nigerian economy, as it is now, is so low that taxation may not be one of the most advantageous areas for enhancing economic growth and development. So I think the government should tread with care with regard to issues of tax reforms. And then again, I the committee that the government has set up, I believe, they are experts and should know how to go about the tax reforms in such a way that it will not overburden the people and drive away investors, but will instead add value to national growth.

But then again, why does the government have to rely on taxes? It is just an aspect as there are other areas, which was why I said the government has to diversify its revenue sources by investing in physical and capital infrastructure and resuscitating the lifeless factories. The government needs to understand that Nigerians are experiencing serious hardship now occasioned by food shortages and inflation on a daily basis. So their purchasing power is already reduced.

Ordinarily, tax policies should protect households and small businesses from high inflation. But if the Nigerian government wants to create a tax to raise more revenue in an economy like ours with the current downturn that it finds itself, it is not going to be sustainable. If you follow the news consistently, you will see how the people were shouting in the last few weeks when the government talked about the issue of taxation. The population was not very happy. So, it is an area I think the government should tread on with care.

But looking at things closely, I think I like what Tinubu’s government is planning to do in the area of diversifying into other areas. A few weeks ago, the government said it would look at one refinery in Port Harcourt and soon, it would start working. That is another step. Though agriculture is one area I have not heard the government talk much about, I guess that is because we just have the Minister for Agriculture in place. And with other ministers in place as well, I think the government will intensify its searchlight on other areas of the economy in a bid to boost the economy and give rise to development. But generally, in my opinion, the tax reforms should focus basically on alleviating the sufferings of the people by reducing the tax burden on the poor and export-oriented manufacturing.

You see, we tend to often times adopt policies that are actually not even being implemented in some of the developed countries. For instance, in some of these countries, there are subsidies for agriculture and some other sectors. But they would come and tell us to remove the subsidy which will not create some problems. Meanwhile, they are not doing that in their own economy. These are just ways they undermine the economies of the developing countries.

That is why I like President Tinubu’s speech at the UN General Assembly. It was a wonderful speech. It just shows that Africa has not come of age and that right now, Africans know what they want. For some months now, I have been telling people that what is happening in Africa is the true African Renaissance. This is because if you look at the coups that have happened, though I don’t support coups because democracy is a better form of government if you look at the speeches of the coup leaders, the juntas, who said they are tired of being subordinates and subservient to the developed world. The juntas have said they want to own their own economy and control their countries’ resources. These are all parts of the ongoing brouhaha in the continent. Even our president told the UN Assembly that it is high time the developed world thought about equality, parity, and equity across the globe.

 

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