2016 BUDGET AND THE IMPERATIVES OF PUBLIC BORROWING

Ifeanyi Omokwe

The 2016 budget like previous budgets can be described as ‘promising’ for the betterment of the Nigerian people. Indeed, it is a step towards making our nation great. Conscious steps ranging from the budget on capital expenditure, welfare services to be offered to the teeming youth, and the slash in cost of servicing the executive arm of government, shows nothing but promises for a brighter future. Whereas we must celebrate the content of the budget, coupled with the integrity of President Muhammadu Buhari, there is much that can be achieved in the positive light.

Politically, we must recognize that the president has gone great lengths in accomplishing part of his campaign mantra of “change” to Nigerians. However, we must not be overexcited about the initiative until we have subjected it to intellectual scrutiny as to the effects of the budget on the Nigerian economy and to posterity. It is important to note that the failure to do this will automatically make Nigerians similar to the proverbial beggars that ride on horses and cruise in Ferraris. This similarity exists ultimately because our collective intelligence has been toyed with time and over again by the political warlords, due to our inability to conduct a proper causal analysis of our intended actions as a nation. The following paragraphs should explain better.

If we were to study politics 101, the first thing we would be taught is the superstructure and substructure theology, where it is believed that the economy (substructure) controls or influences the political, cultural and social spheres (superstructure) of the society. However, the central truth remains that the politicians control the economy irrespective of what comes after. The Nigerian experience under President Buhari is that it is ultimately unchecked politics that destroys the economy. This is evident in the war against corruption and the promises it holds for the proper management of public funds.

In simple English, all this banter just goes to say that the President has made a politically correct step. And the implications transcend to projected economic prosperity.

Naysayers and prophets of doom will be hasty accusers of the source of revenue; especially the issue of public borrowing vis-à-vis the nation’s debt profile.

The implications of public borrowing are enormous for us as a country. Economic expert Nimal Sandaratne puts it thus: Government borrowing is not necessarily detrimental to an economy. In fact it could be advantageous if the funds borrowed are used for the long term development of the country and gives a return higher than the interest paid on the borrowing. Borrowing is a means of increasing total savings to enable increased investment. Short term foreign borrowing can assist in resolving constraints in foreign resources to tide over temporary balance of payments difficulties such as under the Stand-by Agreement with the IMF or Chinese government owned banks. Large development projects that confer benefits in the long run need borrowed funds. Therefore government borrowing is not inherently bad. In fact it could be an important means of spurring an economy to a higher trajectory of economic growth than its current resources permit.

Let us attempt to find a correlation between the concept of political correctness and economic prosperity. This is very crucial to our understanding of the subject matter because we cannot overlook the environment with which the promises were made and are being kept. At the time the promises were made, the price of oil was at a whooping sum of $120 per barrel. The implication therefore is that the policy would have incurred minimal borrowing under such fiscal regime. However, the reality of the Nigerian oil predicament today is that oil sells for about $32 per barrel and is expected to drop to $20 based on IMF speculations. For a country that is making bold steps in diversifying the economy, this spells great boom especially as the funds is budgeted for capital expenditure.

Besides, Nigeria’s economy has been described as one of the most attractive investment destinations in the emerging markets despite the headwind blowing across most oil producing nations since 2014, this can be well attributed to the emergence of the Debt Management Office (DMO) and its effectiveness in successfully restructuring Nigeria’s loan.

It would be recalled that the DMO resuscitated the Domestic Bond Market in 2003 when it first issued FGN Bonds. This landmark achievement was intended to restructure the Government’s domestic borrowing which was predominantly short term and to develop the domestic bond market which had been moribund for about 20 years.

The emergence of Dr. Abraham Nwankwo at the helm of DMO on July 1 2007 almost coincided with the final exit of Nigeria from both the Paris and London club debts in 2006. Before then, our external debts had remained unsustainable as a result of the crushing debt burden arising from the external debt overhang. Following the exit from both Paris and London club debts, our external debt fell from an all-time high of about $35 billion in 2004 with an external debt-to-GDP ratio of over 40 percent to about 3.5 billion in 2006 and an external debt-to-GDP ratio of 2.3 percent respectively.

Under his guidance, DMO has relentlessly pursued the realization of its statutory mandate and has recorded verifiable achievements, making it the pride of the nation across Africa and the world.