BITTER TRUTH ABOUT OUR ECONOMY THEY WONT WANT YOU TO KNOW... PART 3 Lying with data? Some glaring inconsistencies Many Nigerians have wondered how the high growth rates being reported are possible given the “facts on the ground” – to use a well-worn Nigerian phrase. As explained above, decent rates of growth is possible in a chaotic domestic environment so long as external conditions are largely favourable. Notwithstanding, from a strictly conceptual point of view, there are serious reasons to question recent growth data and the integrity of data more generally, as would be clear in the following exposition. Inconsistencies in regional contributions to growth To accept current measures of economic performance and the high growth rates, one would have to agree that the disturbances in the North East region, which has brought the regional economy to a halt in the past two years with spillovers to neighboring regions, has not made a dent on growth. Furthermore, one would have to accept that the oil theft in the Niger Delta, which the London think tank, Chatham House, described as “industrial scale” and estimated at $3bn-$8bn a year, did not impact on GDP growth. By any calculation, oil theft at the upper end of this range is enough to lower the growth rate directly by 1-2 percentage points, and much more indirectly through the impact on other sectors of the economy. Inconsistencies in key macroeconomic indicators Nigeria’s main macroeconomic indicators have weakened considerably recently, raising questions about why the weakness has not impacted on growth. A few examples will suffice: Fiscal balances: Nigeria’s fiscal balances are much weaker than at any time since the beginning of civilian regime. In the first five years of President Jonathan, the fiscal account was in deficit, on average by 4 per cent of GDP. During the first five years of civilian rule in contrast, the fiscal balance was in surplus, on average, by close to 2 percent of GDP. (Figure 2) Again, this is despite much lower oil revenue earnings during the earlier period. Even though the Jonathan fiscal deficit remains small by international standards, it is still higher than that of many oil exporting countries which are all accumulating surpluses rather than deficit and using the opportunity of high oil prices to invest in long term infrastructure. What is becoming clear to critical observers is that the budget deficit is more or less contrived through an unrealistic oil benchmark price. With lower revenue and higher expenditure projections, the result is a deficit balance. DMO is then required to “borrow” at excessive cost “to finance the deficit”. But with the usual less than 70 percent implementation rate of the budget, nobody has bothered to find out why there is still a deficit if the budgeted amount was not spent and why the need to accumulate new debt! Public debt: Public debt stock is much higher than at any time since the Paris Club debt exit of 2006. In 2007, total public debt fell to N2,678b ($3.5b external debt from $36b, and N2.2b domestic debt). But as of end 2013, public debt has increased by more than 300 percent to N8,423b ($8.2b external, and $60b domestic). (Figure 3). If AMCON debt and other agencies are included, the total debt burden is now over N1 trillion. By end of 2014, Nigeria’s total debt should easily approach over $100b, most of which were accumulated in the past 6 years. Given the well-established negative correlation of debt and economic growth, how has growth been so strong? Debt service: According to 2013 federal budget data, close to 20 percent of recurrent expenditure is devoted to servicing debt alone, a contrast to 2007, when only around 10 percent of recurrent expenditure was spent on debt service. The major conundrum is the lack of clarity on why debt accumulation should be so high in the presence of historically high oil prices, and what exactly the debt is financing. Furthermore, government’s policy of accumulating debt at average interest rates of 13-15 percent when the same government is receiving less than 3 per cent on its savings (foreign reserves) beats economic logic. Why not use some of the savings to finance the needs and save 10 percent? It will also be interesting to find out why debt accumulation is bad in 1999-2007, but is now a good thing. Foreign reserves: Nigeria’s foreign reserves have followed a pattern similar to the other indicators since the beginning of civilian rule. In the Obasanjo and Yar’Adua periods, reserves high enough to finance, on average over 7 and 10 months of imports respectively. However, in the six years of President Jonathan, it has declined to about 6.3 months of imports. (Figure 4). When compared with other oil exporting African countries, in the first two periods, Nigeria’s foreign reserve accumulation was stronger than those of other countries. However, in the recent period, Nigeria is just about catching up with others. Although stabilization funds exist, the federal government has struggled to replenish them, despite high oil prices.
Posted on: Mon, 22 Dec 2014 10:09:44 +0000
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