In this interview, the Executive Chairman, Society for Analytical Economics, Prof. Godwin Owoh, says even if the law setting up the Debt Management Office prevents it from monitoring proceeds of borrowings, the Ministry of Finance ought to show projections on how government plans to pay back loans before borrowing.
How do you explain the back and forth between the Federal Government and Atiku Abubakar over the sustainability of Nigeria’s rising debt, in comparison to revenue shortfalls. Does Atiku’s position reflect Nigeria’s debt situation?
Obviously, that is the true situation.
The data is from official source and you can see, most recently, a lot of people have expressed worry over the cost of servicing Nigeria’s debt.
Remember, when you define debt servicing, it excludes the payment of the principal amount.
It is just the charges; administrative charges, interest that is accrued and a lot of other extraneous cost outflow as a result of debt.
If you now add a capital component, you will see that the economy is actually in danger; that is far beyond what you can expect.
Even with the 99 per cent suggested that debt servicing is taking up of generated revenue that has excluded contingency cost of revenue collection.
It also excludes other contingency cost that ordinarily reduce the revenue figure.
So, that percentage is even understated if you to do proper accounting for it.
If you look at the revenue data they are using, they are using government revenue data essentially on both the cash collectable and the accrued supposed revenue, most of which may not even be realised.
So that percentage is even far worse than what is being shown if you use accounting data.
That is the situation, it is a very difficult situation. It calls for serious emergency fiscal attention from the side of government.
It is beyond partisan politics. Hunger does not know whether you belong to this party or that party.
What I am trying to tell you is that the GDP figures being used are artificial
The Nigeria government is claiming the country has one of the lowest debt to GDP ratios in the world. If that is true, why are so many economists concerned?
What is GDP actually? GDP is the monetary value of all the goods and services you claim to have produced in a period.
And if you go by that, and if you juxtapose that with the fact that over two third of the active economic segment of Nigeria is not operational, you look at the threat of Boko Haram, other terrorist groups, all these things have slowed production.
Nigeria is actually not operating up to 20 per cent capacity.
If you talk of the services, most of the Nigerian professionals of note, medical doctors of note, all of them earn their money outside the country.
They run away. So most other professionals go outside Nigeria to work in order to be able to meet their costs.
The service sector is heavily under-utilized. And production. How many industries are working?
They are folding up at a faster rate than new ones are coming up.
The entire industry, the entire farmland, all the production centers from the middle belt to the far north, they are not operational for more than five to six years.
So where are the GDP figures coming from?
What I am trying to tell you is that the GDP figures being used are artificial. They are not real.
For you to speak of the real GDP, you should see an empirical equivalent of what you are saying.
If you say the GDP is growing or the GDP is this, you should see the impact. If the debt is rising, the figure we had in 2011 to now and the production area, services and goods, has not shown equivalent increase, employment level has not shown an equivalent increase, it just shows that those figures that are being used is just to provide a mathematical answer to predetermined issues.
So, debt to GDP ratio is not real. The GDP component is not real.
If you deflate that GDP figure with a single indicator, that exchange rate, the devaluation in the exchange rate, even if the interest is constant and the rate of inflation is constant, just apply only the exchange rate deflator on GDP, you will see the impact.
By the time you add the interest rate component and inflation component, these three components make up the three microeconomic prices that helps you to weigh the reality, the strength of your GDP.
That is how inflation rising, how is your interest rate rising and how your currency, which is the exchange rate denominator, how is it reducing.
You will see that the GDP figure you are having, by the time bring in that singular factor of microeconomic price, you see the true position.
This tells you that even the GDP/debt ratio we are quoting is very wrong.
In most other jurisdictions, you subject your fiscal compositions to fiscal audit. When you say your GDP figure is this, your inflation rate is this, your interest rate is this and you are government agency authorised by law.
You also have an equivalent agency that should audit it and confirm that there are no errors in the compositions, otherwise by the time you double the denominator and numerator, you gave any figure you want to get.
So, the GDP we are quoting cannot be relied upon.
It is a mere political figure that is put forward to support underlying arguments.
Unfortunately, we do not realise the problem we create for ourselves until we engage in international discussions on this matter, comparatively with other countries.
Then you almost feel ashamed. Go to ARC where they are discussing African economic performance.
By time they bring these macroeconomic indicators and bring the underlying assumptions and compositions, you will feel Nigeria cell is virtually empty.
Most of the components that make up this aggregate, we don’t have data on them.
They are all based on estimates. It is public knowledge in IMF and World Bank that within the sub region, out of the 47 components you require to compute GDP for a country, Nigeria is having 17 cells empty, no information, and inaccurate information.
But because you must compute for Nigeria, you estimate. How can be throwing such outcomes about?
In a tenure based political under democracy, every appointee that is set to work within four years will want all the money to come while he is there so that it can be filtered away
The government’s defence is that a lot of the money being borrowed is being used to finance infrastructure. Is that a good reason to keep borrowing?
Nobody thinks of living on borrowing.
Every household wants to live like kings, far above their earnings and they as well decide to be borrowing to make up.
Does that make sense?
Nobody, no institution, no government should be thinking of living on borrowing.
What are you leaving for the generation that is unborn?
The infrastructure you are building today, are you sure they will be needed when the generation comes up?
The truth of the moment for a generation is always different from the past generation.
So, what that generation need may even be totally different from what you have spent all their resources to construct in the name of infrastructure.
More so, infrastructure is something that grows naturally.
New York that has the tallest buildings in the world today started with bungalows.
It grew when people were growing.
It is the human mind that develops infrastructure, not the other way round.
You should develop human capacity, expand the capacity to earn income.
From that income, you start getting the level of infrastructure you require.
Most of these monies are being borrowed because particular amounts is desired to be spent by office holders.
That is the major problem of tenure based political system compared to monarchy.
In a tenure based political under democracy, every appointee that is set to work within four years will want all the money to come while he is there so that it can be filtered away.
A typical government is supposed to tie authority with responsibility.
That is, make efforts, generate the normal income you should generate during your tenure and then do what you can to achieve your results.
But what we are seeing now encourages mediocrity, encourages laziness, encourages inaction and then promotes waste, inefficiency and corruption because the focus is just to make every office holder have access to as much money as possible, whether borrowed or earned.
Remember, the key underlying factor for any borrowing is that you are going to generate much more so that you can repay what you have borrowed, pay the charges and interest, and still have something left.
But if you check, if you take a track analysis of the previous borrowings, none of those borrowings are being backed up by the cash flow that was submitted at the point the borrowing was done.
That is, none of them is being tracked with the respect it is bringing. What you see is that we borrow again to pay back the borrowing.
It is public knowledge in IMF and World Bank that within the sub region, out of the 47 components you require to compute GDP for a country, Nigeria is having 17 cells empty, no information, and inaccurate information
Are you suggesting that the Ministry of Finance and the Debt Management Office are failing to do due diligence before they borrow?
That is exactly what I am saying.
They are all failing in their duty.
And the law is not even helping matters.
See, the Debt Management Office is out of it because, surprisingly by their law, their duty does not even include monitoring the debt.
It does not include monitoring the deployment of the proceeds, it does even include involvement in the decision of what to borrow and what not to borrow.
The Debt Management Office cannot stop government from borrowing.
They are just there to present the plan, to present the paper work to support the borrowing, that essentially to record, just to record.
They don’t even have access to the proceeds.
They have to plan it, prepare debt instruments that are going for auctioning and all that.
The actual monitoring of the deployment of the proceeds is where the problem is.
Unfortunately, that role is given to the international finance department of the Federal Ministry of Finance. And that department has been comatose.
I think the real blame goes to the Federal Ministry of Finance.
They are not doing their work. If they are doing their work, they should show us particular borrowings that have happened over time, show us the cash flow, the projection where you have stated how you are going to generate money to pay back.
Show us the cash flow, then show us how the cash flow is paying money back from those funds.
What we do is you borrow money, present cash flow documents, after the borrowing comes in, you throw away the cash flow documents, nobody cares.
Nobody goes back to it to find out. In fact, nobody even goes back to be sure that those borrowings, the proceeds went to where they were required.
These are basic principles that if you follow it, it will be difficult to go and borrow every time.
You shouldn’t have cause to go and borrow every day.
So, it is not ideal for a government to have very bogus apetite that is not commensurate to the resources we have.