Tuesday <strong>31</strong> <strong>Oct</strong>ober <strong>2017</strong> 8 BUSINESS DAY
Tuesday <strong>31</strong> <strong>Oct</strong>ober <strong>2017</strong> comment is free Send 800word comments to comment@businessdayonline.com KEMI ADEOSUN Kemi Adeosun is Nigeria’s Minister of Finance Since the middle of 2014, when the price of crude oil fell dramatically, Nigeria’s finances became challenged. This is not hard to explain: we’ve historically depended on crude oil for as much as 70 per cent of government revenues, and 90 per cent of foreign exchange earnings. The outcome – pressure on government’s finances – was by no means unusual. A similar fate befell most oil-rich countries around the world. Where Nigeria possibly stood out was in the fact that during the preceding three years when oil prices were in excess of 100 dollars per barrel, the Government did little in terms of saving and investing for the future. Our Sovereign Wealth Fund, which was established in <strong>Oct</strong>ober 2012with just US$1 billion, did not receive any further inflow during the oil price boom.Instead, billions of dollars were Positioning Nigeria for a prosperous future squandered through corrupt oil and defence contracts. It is a terrible thing for a country to fall on hard times without a savings buffer. There was nothing unexpected about our downturn. It was the inevitable result of the choices we made or didn’t make during the years of boom. What is remarkable, yet not as talked about, is the way we have worked so hard to exit the recession, reset the economy and reposition it for a brighter future for the present and future generations of Nigerians. The Administration of President Muhammadu Buhari is laying the foundation for the kind of economic growth that makes a real impact in the lives of citizens. The downturn has inspired unprecedented levels of fiscal responsibility, in line with President Buhari’s determination to fight Nigeria’s endemic corruption. Shortly after taking office, he issued a Presidential order mandating the immediate implementation of the Treasury Single Account (TSA) system, consolidating thousands of government accounts scattered across deposit money banks into a unified system that is transparent and easy to centrally monitor and track. Under the old system, it was common for government accounts to be converted into personal use, but under the TSA this is impossible. Also, the proliferation of accounts encouraged rent seeking A lot of the work we have done over the last two and half years has been focused on dismantling the old ways of doing things, rebuilding them, and empowering and fortifying our institutions with technology to block loopholes, discourage abuse, and prevent a relapse into the destructive ways of the past rather than questionable practices. Budgetary reform has also taken a lot of our time and attention. We are pioneering the use of software to prepare our annual budgets, which allows greater transparency and the ability to track changes. We have insisted on using biometric verification in the deployment of our Social Investment Programme, which includes a Job Scheme for unemployed graduates, a School Feeding Scheme for Primary School Pupils, a Conditional Cash Transfer scheme targeting a million of our poorest citizens, and a Micro-Credit scheme for artisans, farmers, and traders. In the past the Social Investment payments would have been done as cash handouts. A similar insistence on biometric verification for the federal payroll has C002D5556 resulted in the detection of tens of thousands of bogus beneficiaries – or ‘ghost workers’, as we often refer to them, in Nigeria – and savings running into billions of naira every month. We are pursuing unprecedented cooperation with foreign governments and powers, as part of our transparency and anti-corruption drive. For the simple reason that a disproportionate amount of public funds looted in Nigeria end up in the United Arab Emirates’, Nigeria has signed bilateral agreements with the UAE Government on extradition, exchange of information, and repatriation of stolen public funds. One strong demonstration of our political will has been a Whistleblowing Scheme we launched months ago that empowers citizens to report public corruption. The impact in terms of recoveries has exceeded our expectations. The tighter rein on public finances allowed us invest US$500m in our Sovereign Wealth Fund, during a recession. A lot of the work we have done over the last two and half years has been focused on dismantling the old ways of doing things, rebuilding them, and empowering and fortifying our institutions with technology to block loopholes, discourage abuse, and prevent a relapse into the destructive ways of the past. The new Nigeria we seek will not happen without this kind of foundational reform that imposes on us new BUSINESS DAY 9 COMMENT ways of thinking and of doing things. The early results are already being seen. A concerted focus on agriculture has seen our rice imports from Thailand dropping by 90 per cent between 2015 and 2016, and replaced by locally grown variants. As oil has let us down, we have started to do what we should have done decades ago, invest in agriculture and mining. Throughout the recession, agriculture recorded healthy growth. As we emerge from the recession, its impact is certain to multiply and position Nigeria for a prosperous future. Let me point out that the most important elements of any reform effort tend to be the least flamboyant. We are confident that in the months and years ahead, Nigerians and the world will see the full impact of the foundational resetting that the Buhari administration has been focused on since 2015. There is of course a lot of resistance to reform, by vested interests within and outside the system. But we are not fazed. The work of reform goes on. It is, to borrow from the Nigerian novelist, Chinua Achebe, morning yet on Creation Day. Not very long from now, Nigerians and the world will look back on this recession we have just emerged from, and realise that it was the turning point in Nigeria’s journey to true growth and greatness. Send reactions to: comment@businessdayonline.com States’ fiscal cliff: will the Paris club refund make any difference? UCHE UWALEKE Uche Uwaleke, a Chartered Banker, Stockbroker and Fellow of ICAN, is an Associate Professor of Finance and Head of Banking & Finance department at Nasarawa State University Keffi Concerned about the failure of many State Governments to pay salaries of civil servants, President Muhammadu Buhari, according to media reports, has given his nod that the third tranche of what has become known as the ‘Paris Club Refund’ be released to State Governments. Although sub-national governments are entitled to these refunds as they arose from over-deductions from statutory allocations to the 36 states in respect of debt service obligations between 1995 and 2005, the approval represents yet another intervention by the federal government to rescue many States currently experiencing severe financial crisis. It will be recalled that in the early days of the present administration, State Governors, under the aegis of the Governors’ forum, made a request for a bailout from the federal government to enable them clear arrears of several months’ salaries to their workers. Consequently, the federal government rolled out a relief package involving a special intervention fund packaged by the Central Bank of Nigeria that offered soft loans to the States, ranging from N250 billion to N300 billion as well as a debt relief programme designed by the Debt Management Office to enable state governments restructure their commercial loans which was put at over N660 billion at the time. The whole idea was to extend the duration of such loans, reduce their debt-servicing obligations and put States in a stronger position to at least pay salaries. The impact of this relief package was negligible or so it seemed. Following sustained pressure by the State Governors, the federal government in December 2016 released to the States the first tranche of Paris Club refund to the tune of N516.38 billion on the understanding that a minimum of 50 per cent would be applied to offset outstanding salaries and pensions. Sadly, this also yielded very little results not least because many State Governors had other priorities. In May <strong>2017</strong>, the federal government once again offered another relief package to the state governments to the effect that it would defer deductions from States’ Federation Account allocations on their restructured loans. This ‘’deferral’’, which was a bailout by another name, amounted to a total of N10.9 billion. Barely two months after this package was announced and seven months after the first tranche of the Paris Club Refund was released to the States by the federal government, the former demanded and got in July <strong>2017</strong> the second tranche amounting to N243.795 billion. Just like the previous rescue packages, the federal government had intended that the refund would enable the States meet their obligations to workers and so had advised state governments to use between 50 per cent and 75 per cent of their share of the refund to clear the arrears of salaries and pensions considering the fact that the non-payment of salaries had contributed to the economic recession. The huge backlog of salaries in several States despite the various financial support extended by the federal government speak volumes about the level of financial mismanagement in many states of the federation. Once again, State Governors are already salivating, anxiously expecting the third tranche of the Paris Club refund. Would the story be different this time around given the enormity of the financial challenges facing many States? This is doubtful. In its <strong>2017</strong> ‘State of States’ report released recently, BudgIT, a non-governmental organisation, disclosed that ‘only four states could meet their recurrent expenditure obligation without resorting to borrowing or tapping donor funds and other extra-budgetary revenue sources’. The report noted further that State governments are heavily indebted to commercial banks to the extent that ‘average growth rate of states’ debt between 2012 and 2016 remains elevated at 22.16 per cent, while average growth rate of internally generated revenue is 9.04 per cent’. This narrative on financial mismanagement and misplaced priorities equally resonates in the failure of many States to take advantage of even sector-specific funding opportunities provided by the federal government. A clear example is the UBE grant designed to ensure compulsory, uninterrupted nine years of Primary and Junior Secondary School education throughout the country. Data from the Universal Basic Education Commission website indicate that unaccessed matching grant as at <strong>31</strong>st March <strong>2017</strong> totalled a whopping N59.744 billion. With the exception of Borno State, the remaining 35 states and the Federal Capital Territory were yet to fully access their UBE grants largely on account of inability to come up with matching funds as well as show evidence of proper utilization of the grants earlier disbursed. With the finances of many state governments dangling on a ‘steep rock face at the edge of the sea’, another Paris Club refund will only scratch the problem except it is accompanied by drastic measures aimed at improving States’ Internally Generated Revenue as well as enthroning transparency and accountability in the management of their finances. In the United States of America, the fiscal cliff challenge of 2013 was addressed through a combination of tax increases and across-the-board government spending cuts. The latter is particularly recommended for State governments in Nigeria. To this end, the States can undertake significant cut in their bloated overhead and personnel costs. This could be achieved through streamlining ministries departments and agencies, reducing the number of political appointees, eliminating payroll fraud, establishing an Efficiency Unit and publishing audited accounts. State Governors should resist the temptation of borrowing from commercial banks to execute projects. In this regard, it is heartening to note, following a recent disclosure by the chairman of the Nigerian Governors’ Forum Abdulaziz Yari of Zamfara State, that the 36 state governors were in talks with the Nigerian Stock Exchange on the issue of raising medium to long-term funds. With respect to borrowing, State Assemblies should ensure that state governments comply with Section 42 of the Fiscal Responsibility Act 2007 which provides for borrowing limits and that loans are linked to viable projects. It is by so doing that this last tranche of the Paris Club refund would have the desired impact and pull the finances of many state governments away from the fiscal cliff. Send reactions to: comment@businessdayonline.com