Ultimately, as a contribution to the Buhari administration‘s larger aim of rewriting the rules of economics, the most important achievement of this large debt burden will be to secure the reallocation of labour away from our urban areas and cities towards subsistence life in the villages. That may mean a poorer economy. But it might also mean a less unequal one.
One of the more interesting tales that will be told about the last five years of our development as a democracy is how the Buhari government tried to rewrite the rules of economics (by abjuring the known connection between interest rate and inflation and seeking to grow the economy by moving labour from relatively high productivity levels in the cities to low-yield subsistence farming in the boondocks, amongst others) in a frenetic bid to fast-track growth. And of how it failed pitifully. Domestic economic output growth has slowed to the point where it has become negatively correlated with government spending. In the fervid waters that have trickled through, only one blossom has thrived: poverty.
This one stellar performance notwithstanding, this is a story with a rich cast. Rapidly rising domestic prices play a bit part. Unsure how much of inflation over the last two years was structural and how much transitory, the monetary authority froze in the path of rising prices, like fawn caught in the headlights of a swiftly approaching vehicle. The naira could claim a supporting role ― if only because of the many, often disjointed, narratives spun around it. We were not, for instance, to worry much about the direction of the exchange rate before the balance on the gross external reserve crossed over to the wrong side of US$30 billion. Only then was the Central Bank governor willing to suffer conversations around the naira’s devaluation. In the intervening period, the Central Bank was going to severely chastening all who dared to speculate on the currency’s direction, in such a way that it would leave a rank lesson for currency speculators worldwide. In the end, the naira has, over the last year crawled, battered and bloodied, from one low to the next.
Yet, none of these threads quite captures the temper of this age, the zeitgeist as it were, as does the one told by the build-up of the national debt. Whether at the national level, where it has quadrupled since 2013 (rising from ₦7.53 trillion as at end-March 2013 to ₦33.11 trillion as at March 2021), or at the sub-national level where the domestic component closed March 2021 at an unsustainable ₦4.12 trillion, the country’s debt portfolio is now a huge burden on the economy. In a sense, this statistic merely underscores several of the certitudes of the old economics, which the incumbent government has striven to subvert. First, it shows how fiscal incontinence is a major driver of rising prices. And there is no greater measure of a government’s inability to hold its fiscal bladders than runaway debt. Then there is the relationship between rising domestic prices and the downward pressure on the naira. As The Economist newspaper so succinctly put it last week, “It is hard to get people to trust a currency when memories of betrayal linger”. Central Bank indifference to the inflation outlook invariably involves a violation of the naira’s promise to help its holder store value.
The promise by successive governments to make public spending more efficient has been observed more inthe breach since 1999. Now, on top of all that problem, at a time when earnings from oil are scraping the bottom of the fiscal pot, if one account of the problem is to be believed, the country earned N3.42 trillion last year, only to spend N3.34 trillion on servicing its debts.
These, alas, may be some of the more severe economic afflictions besetting the Nigerian, today. But they are far from all that sis not all that she has to contend with. Debt service increasingly accounts for a large share of government revenue. The promise by successive governments to make public spending more efficient has been observed more in the breach since 1999. Now, on top of all that problem, at a time when earnings from oil are scraping the bottom of the fiscal pot, if one account of the problem is to be believed, the country earned N3.42 trillion last year, only to spend N3.34 trillion on servicing its debts.
Still, as a share of the economy’s total capacity, the debt is manageable – about 12 per cent of our gross domestic product. Indeed some would remind you that even at that, it is well below the median debt-to-GDP ratio for frontier economies. But with sundry government efforts to boost domestic productivity having fallen flat on their faces, the Federal Government’s large debt portfolio acquires an intergenerational dimension. If future generations are to pay part of this debt (before or after we agree another debt forgiveness package with the Paris and London Clubs), it would help that some of these borrowings have been spent on boosting domestic capacity. Yet, all we have is further evidence that some of the borrowing might simply be slaking the appetites of the bureaucratic beast – as we borrow to meet the public sector’s wages and overheads bills. Ultimately, as a contribution to the Buhari administration‘s larger aim of rewriting the rules of economics, the most important achievement of this large debt burden will be to secure the reallocation of labour away from our urban areas and cities towards subsistence life in the villages. That may mean a poorer economy. But it might also mean a less unequal one.