Nigeria needs to focus on macroeconomic, fiscal stability – Akinwumi Adesina

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Nigeria needs to focus on macroeconomic, fiscal stability – Akinwumi Adesina

President of the African Development Bank Group, Dr Akinwumi Adesina, has urged the incoming government of Bola Ahmed Tinubu to pay attention to macroeconomic and fiscal stability.

He said unless the economy is revived and fiscal challenges addressed boldly, resources to develop the nation will not be there.

Speaking at the Inauguration Lecture for the New President of Nigeria, Adesina said, “Nigeria currently faces huge fiscal deficits, estimated at 6 % of GDP.

This has been due to huge federal and state government expenditures, lower receipts due to dwindling revenues from export of crude oil, vandalism of pipelines and illegal bunkering of crude oil.

Quoting Nigeria’s Debt Management Office, Adesina disclosed that Nigeria now spends 96% of its revenue servicing debt, with the debt-to-revenue ratio rising from 83.2 percent in 2021 to 96.3 percent by 2022.

“Some will argue that the debt to GDP ratio at 34% is still low compared to other countries in Africa, which is correct; but no one pays their debt using GDP.

“Debt is paid using revenue, and Nigeria’s revenues have been declining,” Adesina said.

Nigeria earns revenue now to service debt — not to grow

While regretting that Nigeria earns revenue now to service debt and not growth, Adesina called for the removal of fuel subsidies.

“The place to start is to remove the inefficient fuel subsidies.

“Nigeria’s fuel subsidies benefit the rich, not the poor, fueling their and governments endless fleets of cars at the expense of the poor.

“Estimates show that the poorest 40% of the population consume just 3% of petrol.

“Fuel subsidies are killing the Nigerian economy, costing Nigeria $10 billion alone in 2022. That means Nigeria is borrowing what it does not have to if it simply eliminates the subsidies and uses the resources well for its national development.”

He added, “Rather, support should be given to private sector refineries and modular refineries to allow for efficiency and competitiveness to drive down fuel pump prices.”

The AfDB President noted that the newly

commissioned Dangote Refinery by President Buhari – the largest single train petroleum refinery in the world, as well as it’s Petrochemical Complex — will revolutionize Nigeria’s economy.

He also congratulated Aliko Dangote for his amazing $19 billion investment in Nigeria.

There is an urgent need to look at the cost of governance

While noting that Nigeria will be looking to Tinubu, on his first day in office, with hope, Adesina said there is an urgent need to look at the cost of governance.

“The cost of governance in Nigeria is way too high and should be drastically reduced to free up more resources for development. Nigeria is spending very little on development.

“Today, Nigeria is ranked among countries with the lowest human development index in the world, with a rank of 167 among 174 countries globally, according to the World Bank 2022 Public Expenditure Review report.

“To meet Nigeria’s massive infrastructure needs, according to the report, will require $3 trillion by 2050.

“According to the report, at the current rate, it would take Nigeria 300 years to provide its minimum level of infrastructure needed for development.

“All living Nigerians today, and many generations to come, will be long gone by then!” He said.

He added, “We must change this. Nigeria must rely more on the private sector for infrastructure development, to reduce fiscal burdens on the government.”

Need to close leakages in tax collection

Adesina said much can be done to raise tax revenue, as the tax-to-GDP ratio is still low.

“This must include improving tax collection, tax administration, moving from tax exemption to tax redemption, ensuring that multinational companies pay appropriate royalties and taxes, and that leakages in tax collection are closed,” Adesina said.

He noted that simply raising taxes is not enough, as many question the value of paying taxes, “hence the high level of tax avoidance.

“Many citizens provide their own electricity, sink boreholes to get access to water, and repair roads in their towns and neighborhoods.

“These are essentially high implicit taxes.

Nigerians therefore pay the highest ‘implicit tax rates’ in the world.”

He said Governments need to assure effective social contracts by delivering quality public services.

“It is not the amount collected, it is how it is spent, and what is delivered.

“Nations that grow better run effective governments that assure social contracts with their citizens.”

Re-balancing the structure and performance of the economy

Adesina said a very common refrain in Nigeria, with every successive government, is “we need to diversify the economy.”

But, he argues that the economy of Nigeria is one of the most diversified in Africa, with the oil sector accounting for only 15% of the GDP, and 85% is in the other sectors.

Nigeria’s challenge is not diversification, but revenue concentration

This is because the oil sector accounts for 75.4 % of export revenue and 50 % of all

government revenue.

“The solution, therefore, is to unlock the bottlenecks that are hampering 85% of the

economy.

“These include low productivity, very poor infrastructure and logistics, epileptic power supply, and inadequate access to finance for small and medium size enterprises,” he added.

He called for the Nigeria shift away from import substitution approach to export-focused industrialization.

“Nations do not thrive through import substitution; they thrive from export-bound industrialization.”