Building the economy with phantom blocks

On October 7, President Muhammadu presented his seventh budget to the national assembly. It is, as one of my reporters never tired of saying, a whopping N16.39 trillion. That is a lot of money for the government to spend in the year 2022. The size of the federal budget is usually taken as a fair […]

On October 7, President Muhammadu presented his seventh budget to the national assembly. It is, as one of my reporters never tired of saying, a whopping N16.39 trillion. That is a lot of money for the government to spend in the year 2022. The size of the federal budget is usually taken as a fair indicator of the health of the national economy. It should be a given that the more money the government has in its coffers, the richer the nation is. But nothing is that simplistic. 

This rather simplified scenario does not tell the whole story of the budget as a reliable indicator of where our country stands among the struggling nations of the world. The main reason is politics. Political leaders and economic planners have  the tendency to give in to the feel-good temptation of human management. A budget, therefore, does not fully represent facts about the national economy; it represents a melange of expectations and ambitions both of which are subject to the toing and froing in the global economy with ramifications for all nations. After all the budget merely spells out what a government intends to do – if it has all the money needed safely locked up in the public till.

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Two problems creep into every budget proposal. The first problem is that there is not enough money to prosecute the intended government policies and programmes. What is missing is called deficit. It reflects the gulf between what the government can earn from its many reliable resources and the amount it intends to spend in the particular budget year. 

The second problem flows from the first, to wit, how to bridge the gap between what is and what it should be in an attempt to fully fund the budget. The only option that presents itself for the government is to borrow money to make up for the deficit. Take other people’s money, make your people happy and settle the debt later. It is an easy option that creates its own problems for a nation and its economy. Take the debt trap. Think of this as the trap you set for a rat with a piece of smoked fish. The rat sees it, its mouth waters and it goes for it. It is trapped. But in the case of the debt trap, the nation in question is to ask for more loans for repay loans upon loans until it piles up enough loans that they become a crushing burden. 

 In Buhari’s proposed 2022 “Budget of Economic Growth and Sustainability,” there is a huge deficit of again, a whopping N6.26 trillion. The government will borrow N5.01 trillion of this figure to finance the budget. It is notable that since his assumption of power six years ago, the president has had a running problem with balancing the budget and he has remarkably lost. Each of those years saw a widening gap between government earnings and its ambition to do much more than the resources at its disposal. To put it another way, he has consistently run a deficit budget and resorted to loans from China, France and other countries willing to put some money in the national treasury. The government feels good about this but it is no way to grow the economy or even prudently manage it.

The easy resort to loans has been a major source of worry among economists and financial experts in the country since Buhari has made it his short hand for economic management. Buhari is not unaware of the tongues wagging loudly about the horrendous implications of his piling up loans for the country. In his 2022 budget speech, he said: “Some people have expressed concern over our resort to borrowing to finance our fiscal gaps. They are right to be concerned. However, we believe that the debt level of the federal government is still within sustainable limits.” 

Sustainable limits are flexible now but the loan repayments with interests tomorrow might not sustainable. The nation watches, with loans tingling in its treasury, as millions of its citizens sink below the poverty line almost daily. Poverty plus a debt burden do not make for economic growth. No nation can be penalised for trying to live within its means. The administration’s ambition to do more need to be tempered with the reality of its financial incapability.

Neither the president nor his administration should lose sight of the fact that a debt burden is also a moral burden that one administration passes on to another. To eat now and let future administrations pay later is cynical, to say the least. One wonders why Buhari has not taken the challenge of our dwindling financial resources as a call to arms in the radical management of the national economy? The economy is allowed to run on its own steam. There appears to be no inducement towards innovation and creativity to reflate the economy and let the kindly do-gooders take their loans elsewhere.

In his memo to Buhari dated September 22, 2016, Nasir el-Rufai, governor of Kaduna State, made the point about Buhari seizing the moment as opportunity to positively do things differently. He wrote:  “In every crisis there lies an opportunity for fundamental change. The current crisis of reduced oil production, unit prices and earnings, which has led to the deterioration of exchange rate, escalation levels of debt and interest rates, and reduced levels of industrial production and employment constitutes an opportunity for our nation to change decades of bad habits and wrong direction in our political economy and governance. This crisis should not be wasted.” 

The crisis has been wasted. The result is the growing burden of loans of some N32.22 trillion in the third quarter of 2020 – and growing fast. According to the Punch newspaper of May 27 this year, the country’s debt under Buhari between July 2015 and December 2020 rose by N20.8 trillion. And it is getting heavier, not lighter. The senate president, Dr Ahmad Lawan, at the budget presentation advised the federal government to “also explore other sources of funding its projects in order to reduce borrowing.” Perhaps the president might listen to the law-maker if the senate for once rejects another loan request from him.

Tope Fasua, an economist, told The Guardian newspaper after the presentation of the budget: “The way we are going now, the fear is that we may never get out of the budget deficit circle.” We are stuck.

Whatever Buhari intends to make of his legacy, he would do well to bear this in mind: a weak national economy will only deepen our poverty and frustrate our developmental goals. And our country will not make that great leap.