Tuesday, February 27, 2024

Buhari Is Leaving Behind Land Mines. Can the Tinubu Administration Avoid An Implosion

The Senate has approved President Muhammadu Buhari’s request to restructure the ₦22.7 trillion loans borrowed by the Federal Government from the Central Bank of Nigeria (CBN) through Ways, and Means advances. In December 2022, the President sent a letter to the National Assembly seeking approval to convert the advances to 40-year bonds that will be sold to investors at 9 percent interest with a three-year moratorium. Senate Leader Ibrahim Gobir said that part of the money was given as loans to states.

Someone on Twitter put this story on ChatGPT to explain better, and it did a remarkable job of taking Nigeria’s public officials to the cleaners:

“In simpler terms, the Nigerian government borrowed a lot of money – $51 billion – and they did it in a way that goes against their rules. They didn’t even check to see where all that money went. Now they’re making the Nigerian people pay it back over the next 40 years, with high-interest rates, even though they didn’t benefit from the borrowed money.

This will likely make things worse for businesses and people in Nigeria by causing inflation and making things more expensive. All of this was approved by the Nigerian Senate, who didn’t do their job properly.”

That’s as basic as a summary can go.

However, more importantly, how the national debt ballooned to this level is an actual example of how not to run a fiscal economy. The government borrowed–locally and internationally. As I have maintained in previous publications, borrowing is not a bad idea if you’re borrowing to invest in projects that can raise revenue to repay the loans. Nigeria’s borrowing has been just the wrong incentive–payment of salaries, fuel subsidy removal palliative, etc.

Now is the day of reckoning. To repay those loans, the country has decided to restructure the debt to be paid over 40 years, attracting high-interest rates. Basically, your government is behaving like a werey that is trying to disguise.

That’s not all there is to the story. Other recommendations were that if there is a need to exceed the legal 5 percent threshold of the prior year’s revenue, recourse must be made to the National Assembly for approval. While this looks legal, this will present an interesting conundrum for the Tinubu-led administration. The Fiscal Responsibility Act says that the Central Bank of Nigeria cannot legally print for the federal government more than 5% of what the government made in revenues the previous year. For example, if the federal government goes to the CBN in May 2023 to get it to print money for whatever reason, the CBN is mandated by law to look at what the government made as revenue in 2022. If the government made N100 as total revenue, the CBN is not authorized to print more than N20 for the government. If it does so, it runs the risk of inflation, as too much money would be chasing fewer goods.

During the Buhari Administration, the CBN has frequently violated that act. It has printed more than 5% of government revenue. Look at the mess in the chart below.

A Tinubu government is more likely to tow the same path. Why? Because in his manifesto (as shown in the screenshot below), Tinubu himself said it. How? He said he would push for the removal of the Fiscal Responsibility Act. How? By delinking spending from revenue. Once you do that, you can print as much money as you like. The consequences would be crazy. Think of Zimbabwe and Venezuela’s levels of inflation. That’s what you’d get. This is what the reps at NASS are proposing.

Anyways, if there is any doubt that Buhari doesn’t really like Tinubu, this could be it. With this ways and means palaver, he’s set Tinubu up. Even worse, read this below:

According to the Punch, Nigeria’s government deducted over ₦78 billion from allocations made to the states for external debt servicing. This was according to data from the Federation Account Allocation Committee Disbursement reports published by the National Bureau of Statistics. The deductions were made in 2022 from the allocations given to state governments from the Federation Account. The state with the most deductions was Lagos, with about ₦23.61 billion deducted in 2022 for external debt servicing, followed by Kaduna (₦10.25 billion) and Cross River (₦7.56 billion). The least affected states were Borno (₦309.79 million), Delta (₦417.54 million), and Zamfara (₦417.96 million).

In simple terms: many states will fight the federal government over this deduction. Buhari won’t be there.

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