Godwin Obaseki and the Gloomy Depiction of Nigeria’s Economy

To many observers, the speech by Edo State Governor, Godwin Obaseki in a video that has gone viral, spells nothing but doom for Nigeria’s economic future. The Edo State Governor, who is an economist and former investment banker, lamented that the nation bears a huge financial burden, with no concrete steps on how she can crawl out of the financial predicament.

Obaseki who spoke on 10 April 2021 during the state transition committee stakeholders’ engagement disclosed that the Federal Government printed N60 billion as part of the federal allocation for March. His words:

“At the end of the month we all just go to Abuja, we collect money and we come back and we spend. My brothers and sisters, I am an economist, and I am an investment banker; we are in trouble. Huge financial trouble!

“First, what we used to rely on, crude oil, forget what we are seeing now, $60, $70 per barrel, it is only a mirage; it is only a question of time. Because, the major oil companies- Shell, Chevron- who are the ones producing; they are no longer investing as much in oil.

“Chevron is now one of the world’s largest investors in alternative fuel. Shell is pulling out of Nigeria. So, in another year or so, where would we find this money that we go to Abuja to share every month? Last month, we got FAAC (Federation Account Allocation Committee) for March; the Federal Government printed an additional 50 to 60 billion to top-up for us to share.

The Edo State governor noted that by the end of the year, Nigeria’s total borrowing is going to be in excess of 15 to 16 trillion. In view of the FX rate, he posited that “My worry is that we would wake up one day, like Argentina, the naira would be 1000, 2000 to a dollar, and it would keep moving.

“You can imagine a family, you don’t have money coming in, and you just keep borrowing and borrowing without any means or idea of how to pay back.

“And nobody is looking at that, everybody is looking at 2023. Everybody is blaming Mr. President as if he is a magician.”

The Minister of Finance is yet to counter or confirm Obaseki’s claims even after 24 hours. But officials from the Federal Ministry of Finance and the Central Bank of Nigeria (CBN) who wanted to maintain anonymity gave a hint that the claims are incongruent.

Whether the claim is true or not, analysts and public commentators have continued to shed light on the dangers on the economy. They noted that it was better for the economy to be in deficit borrowing than for the economic managers to print money not backed by production, which could lead to hyperinflation. That is, a situation where there is too much money in circulation and it is chasing few goods. This hyperinflation can be extremely damaging to an economy.

In economic parlance, if a government prints money faster than the growth of real output, it reduces the value of money and this invariably causes high inflation. Such inflation has grave consequences for the poor than the rich.

Obaseki’s claims have equally alarmed foreign investors who will consider Nigeria’s fiscal predicament as exposed by the Edo State governor a great opportunity. Apart from this, the overall situation has the capacity to affect investment decisions to the demerit of the country. This is because inflation reduces the value of domestic securities making international investors leave the economy.

It is noteworthy that governments often resort to printing money when they cannot finance their borrowing by selling bonds. Rwanda for instance had to resort to printing local currency to pay up her foreign debts. That way the money is not in circulation and cannot lead to inflation.

There is a concept in economics known as quantitative easing. Cash is printed to deal with deep recession and the prospect of deflation. In a very serious recession, demand falls so much that it is possible to increase the money supply without creating inflationary pressure. But in periods of falling velocity of circulation (the number of times money changes hands), printing money doesn’t necessarily cause inflation. The credit crunch causes a fall in the velocity of circulation.

Governments in the US, Japan, and the UK have deployed this strategy in view of the threat of inflation. While it is not totally agreeable that it has worked in the US and the UK, some say Japan’s period of stagflation would have been worse without quantitative easing. As experts posit, quantitative easing is risky. One issue is whether the Central Bank can remove the excess liquidity when the economy recovers.

While it is not strange that central banks around the world print money not backed by production when the economy is challenged, pundits opine that such funds ought to be put into non-productive use. It tantamount to irregular use to print money for the purpose of spending at home as that would stifle the economy in the long run.

In view of Nigeria’s debt rising profile, Governor of the Central Bank of Nigeria (CBN), Godwin Emefiele, who spoke a day before Obaseki’s alarm, said that Nigeria cannot stop burrowing. According to Emefiele, represented by the Assistant Director, Monetary Policy Department, CBN, Dr. Tawose Joseph, at the National Dialogue on Nigeria’s Debt Profile convened by ActionAid to:

“Debt is part of fiscal responsibility. Debt is never a crime or a sin. Private entity also burrows to survive. But what matters most is the quantum of the debt and the usage of the debt as well; if a money is burrowed as a result of shortage of income generation. But where the fear is, is when it is above the threshold.

“CBN understands that when there is a crisis in an economy, then the burden of debt would be something. That is why the conventional and non-conventional instruments are there to ensure price stability in the economy,”

Analysts have nonetheless raised concerns over the country’s debt profile which is further compounding the country’s fiscal crisis. Nigerian States and Federal Debt Stock data as of 31st March 2020 reflected that the country’s total public debt portfolio stood at N28. 63trn.

As the AAN country Director, Ene Obi stated while expressing worry over the upward trend in the country’s debt profile, at the same event organised by ActionAid, she noted that if the unchecked borrowing continues, Nigeria’s efforts at dealing with its challenges of unemployment, failing social services and infrastructure deficit and rising incidences of poverty will be a mirage.”

It is important to mention that Obaseki made some reasonable points when he said that “We are the only country in the world that runs a very strange economy and strange presidential system where the local, state and federal government, at the end of the month, go and earn salary.

“Everywhere else, the government relies on the people to produce taxes and that is what they use to run the local government, state, and the federation.”

Read Also: Governor Godwin Obaseki Receives Certificate of Return

But as Ene Obi queried, the country is not proactive in “exploring other avenues such as blocking leakages from corruption, illicit financial flows, reducing cost of governance amongst others as alternatives to unsustainable and conditional laden debt.”

Some have equally called for the collapse of related commissions and parastatals and the need for the country to practise true federalism so different regions can manage their resources and maximise their potential. From the whole situation, the country is walking on a financial time bomb if not stopped on time, will explode with grave implications for everyone.

Peters Abodunrin

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