Budget deficit not bad, petroleum subsidy must go

The presidential candidate of the All Progressives Congress (APC), Bola Tinubu, says deficit budget in itself is not bad, if well deployed.

He also said the petrol subsidy regime in Nigeria must go, as it has overstayed.

Mr Tinubu stated these while making a presentation to the Nigerian Economic Summit Group (NESG) on Friday in Lagos.

He said a deficit budget is not inherently bad, adding that all modern economies run it.

The former Lagos State governor has consistently maintained opposition to austerity policy, as he advocates expansionary fiscal policy to tackle inflation.

“The most powerful and wealthiest governments run deficits, as do the poorest nations.

“A budget deficit is not necessarily bad. Look at the Japanese example with high government borrowing and low inflation. The real issue is whether deficit spending is productive or not unproductive. Deficit spending is a compound negative, especially if backed by excessive borrowing of foreign currency. This is not classroom economics but it is the lesson of the real economic history of nations,” he said.

However, his message is coming at a time the country is steep in debt, as the administration of President Muhammadu Buhari is unable to balance its revenue and expenditure. To bridge the gap, the government relies on borrowing to finance its budget.

The deficit in the 2023 Appropriation Act recently signed by Mr Buhari stands at over N12.1 trillion – over 50 per cent of the N21.83 trillion 2023 budget. In addition, the Debt Management Office (DMO) puts the entire debt profile of the country at N77 trillion.

Meanwhile, there is N23.7 trillion Ways and Means loan from the Central Bank of Nigeria that Mr Buhari has asked the National Assembly to securitise for 40 years.

I disagree with mainstream thought on inflation — Tinubu

In his presentation, Mr Tinubu expressed opposition to the conventional approach of raising interest rate to combat inflation, describing it as “harsh medicine.”

Nigeria’s inflation rate as of December 2022 is 21.4 per cent.

“I do not hold to the mainstream view that all forms of inflation are best tackled by interest rate hikes and shrinking the economy. Supply-induced inflation does not lend itself to this harsh medicine, just as one does not cure a headache by plucking out one’s eye,” he said.

He stressed that monetary policy is too weak to address inflation, rather, his government would deploy more of fiscal policy.

“Fiscal policy will be the main driver. Monetary policy is weaker and a less effective instrument. Bad monetary policy is, of course, destructive. But even good monetary policy cannot carry the load the fiscal arm can,” he said.

Speaking further, Mr Tinubu added that petroleum subsidy must go, stressing that the subsidy regime has overstayed its usefulness.

“It is based on this idea that I believe we must remove the PMS subsidy immediately. It has outlived its shelf life as a public good. We will neither subsidise neighbouring countries’ fuel consumption nor allow a select few to reap windfall profits and hoard products.

“And the subsidy money will not be ‘saved’ because that means elimination from the economy. Instead, we will redirect the funds into public infrastructure, transportation, affordable housing, education and health, and strengthen the social safety net for the poorest of the poor. thus averting increased security challenges,” Mr Tinubu stated.

He pledged to remove artificial fiscal restraint, and embark on policies to guarantee 10 percent GDP growth per annum.

Mr Tinubu will face Peter Obi of the Labour Party, Atiku Abubakar of the Peoples Democratic Party, and 15 other presidential candidates at the 25 February poll.