Between improving governments’ tax take and growing private spending, By Uddin Ifeanyi

Whatever the preferred management style in the next four years, the overarching national goal is to get the economy to the point where it reaches “escape velocity”. Put this way, although Nigeria’s debt problem is as much a failure of poor official revenue numbers, as it is the result of dismal domestic productivity growth, we will not fix it by just consolidating the fiscal space. More (and better) traction will come from finding ways to sustainably boost private spending.

A measure of how grimly the Buhari government managed the country over the last eight years is in the number (far more than it inherited) and size (way bigger too) of the problems it is about to bequeath to its successor. Given the constraints that the government that we will elect later this year will face, the national capacity for effectively prioritising what needs to be done and then sequencing implementation will be at a premium over the next decade. Central to the task of optimising the national economic function will include (at its most basic) paying attention to unemployment, inflation, the foreign exchange rate, and interest rates. Other variables will matter at the political and social levels. But the character of the causal relationship between the economic variables and others mean that the former matter more.

The process of setting the economy aright should start by acknowledging the severe constraints that the economic illiteracy peddled throughout the Buhari years have imposed on these variables ― the absence of an increasingly large number of young people in education, employment or training across key sectors of the economy; the wearing away of the central bank’s authority as an independent arbiter in and of the monetary policy space; weakening of the economy’s capacity to earn foreign exchange, also due to leakages from the many “windows” in the market; and impediments to the financial intermediation function of banks, as the central bank single-mindedly clings to its financial repression measures.

Over the 12 months to the first quarter of 2024, there will be low hanging fruits to be quickly harvested, such as returning a number of these transactions to the markets, and away from the arbitrariness that has been de rigueur of late. But sustainable improvements will require deeper reforms, especially solutions to the challenge of how to pass on the gains from withdrawing the plethora of ineffective subsidies (on the pump-gate price of petrol, and the naira’s exchange rate) to targeted, means-tested support for the poor and vulnerable segments of the population.

It helps, though, to keep in mind that whatever the government at the centre collects as tax is no longer available to the private sector to spend. And this should matter, if consumer spending still accounts for two-thirds of domestic output. So, understandable, though, it would be to put debt repayment considerations at the fore and centre of public policymaking, it would be wrong, nevertheless. A better description of the medium-term task environment that will face managers of the fiscus, is to find a balance that works.

Over this process will loom the huge debt burden racked up by the Buhari government. Because much of this debt did not go towards improving domestic productivity, either by building up infrastructure critical to the economy’s improved working, or by paying for reforms that resulted in the same outcome, the next government will struggle with how best to pay this debt without throwing the entire economy out of kilter. It would be understandable, then, were the government that we will elect this year to focus on improving revenues and reducing government spend as its major priority. After all, Nigeria’s tax take as a share of domestic output is some of the lowest in the world; indeed in Africa. And its public sector, one of the largest and most ineffective, relative to its citizens’ economic activity.

It helps, though, to keep in mind that whatever the government at the centre collects as tax is no longer available to the private sector to spend. And this should matter, if consumer spending still accounts for two-thirds of domestic output. So, understandable, though, it would be to put debt repayment considerations at the fore and centre of public policymaking, it would be wrong, nevertheless. A better description of the medium-term task environment that will face managers of the fiscus, is to find a balance that works. Moving monies to government to provide at those levels where collective provision is more efficient than provision by economic actors acting discretely ― police, army, etc. ― is one way of describing what needs be done. Understanding that a central authority should have a subsidiary function only, is another way of right-sizing government. In this case, the central government will restrict itself to performing those tasks only which cannot be performed at more local levels, while leaving tax raising powers at levels consistent with the task environment. Finally, there would be spaces, as in education, where experiments at the margin should allow for both private and public provision.

Whatever the preferred management style in the next four years, the overarching national goal is to get the economy to the point where it reaches “escape velocity”. Put this way, although Nigeria’s debt problem is as much a failure of poor official revenue numbers, as it is the result of dismal domestic productivity growth, we will not fix it by just consolidating the fiscal space. More (and better) traction will come from finding ways to sustainably boost private spending.

Uddin Ifeanyi, journalist manqué and retired civil servant, can be reached @IfeanyiUddin.