Chairman of the Nigerian Governors Forum, Abdulaziz Yari of Zamfara State, has painted a gloomy picture of the nation’s economy, saying an urgent recue mission is needed.
Yari said both the Federal and state governments had been borrowing to pay workers’ salaries in the past two years, describing the recent bailout given to state governments to pay salary arrears as a temporary measure.
The governor spoke in an interview with some journalists in Abuja. He said the only sure way the nation could survive the current cash crunch was to diversify its economy.
He said, “Governments, not only states, even the Federal Government, in the last one or two years have been borrowing to pay salaries.
“Okonjo-Iweala mentioned it times without number that they do borrow to pay salaries and they augment later as part of their own share of the Federation Account.”
He said the situation in states was more complex because they lacked the luxury of long-term borrowing like the Federal Government.
He said while the Federal Government could borrow and pay back in 20 years, state governments’ loans were always repaid within four years.
He said the country must look into agriculture and mining among others to survive.
Yari said, “The only thing that can save us is to diversify the economy.We have so many ways like agriculture, mining and infrastructural development.
“I have said it many times that since we started oil export, government did not do much to develop other sectors of the economy in case of this kind of situation.
“Presently, our entire infrastructures are in decay. If you look at India and China, they are earning much from rail transportation alone, their earning is equivalent to our earning in the federation and that is just from rail transportation alone.
“So, if we had developed that sector perfectly, today, it would have given so many supports.
“We need to diversify and that is the only way we can survive, otherwise oil is no longer going to attain the $120 in the next two years, it may be around $70/85.
“But if we diversify the economy, definitely we will get something better but for now and where we are, we only get a temporary solution where we pay salary arrears and then be looking out to pay another one.”
“If the food is not becoming better, then the solution is temporary, but we are hoping that looking inwards and also trying to block leakages in oil producing lands, maybe we will be able to get a better way out.
“But there is no better way than to diversify the economy from oil to mining, agriculture and infrastructure development that will bring more revenue to the federation and the states,” he added.
However, the Managing Director, Economic Derivatives Company Limited, Mr. Bismarck Rewane, said the situation was not as dire as painted by Yari.
Rewane said, “All of us know that our revenues have declined and when your revenues decline what you do is that you borrow and you align your revenue with your expenditure. “But in the meantime you borrow and then you look at your headcount and decide whether you can sustain it. So, alarming headlines are not going to help anybody.”
Asked whether the situation was sustainable, he said what was being done by the government at the moment was the right thing.
He said, “It is either they default and not pay salaries, or they borrow and pay the salaries; then they can reorganise the finances and then solve the problem as they go along. That can happen everywhere in the world.
“America’s national debt is about 120 per cent of their GDP; ours is almost 11 per cent or 12 per cent of our GDP, maybe slightly more than that. So, it is not whether you borrow, but what you use the borrowing to do. But if you continue to borrow to pay salaries for a long time then you have a problem.”
The Head, Investment Research, Afrinvest West Africa Limited, Mr. Ayodeji Ebo, explained that the fact that the country depended largely on revenue from oil suggested that the economy was really facing a challenging time.
Like Rewane, he, however, said the country’s finances were not in a mess.
This, he said, was largely as a result of some of the actions already taken by the government in the face of the challenges.
Ebo explained that the introduction of policies such as the Treasury Single Account and others aimed at blocking leakages had brought about an increase in revenue from the non-oil sectors, leading to a slight increase in the monthly FAAC allocation.
“In terms of the challenges of paying salaries, with the restructuring that has been done, the tenor of the loans have been elongated to also accommodate the cash flow of the states. With this and also the bailout funds, which some of the states have accessed, the situation has improved,” he said.
He said the decision to borrow to pay salaries in the face of the challenges was necessary because had the government opted to default on payment, the economy of states, whose economic activities are driven by the workers in the public, would have shut down.
He also said it was not wrong for government to borrow as long as the funds were used for capital project.
“Borrowing should be channelled more towards capital expenditure; that is what can do in the medium to long-term reflate the economy,” he said, stressing, however, that under the current circumstances borrowing to pay salaries was justified but should be for the short-term.
Also, a professor of financial economics at the University of Uyo, Akwa Ibom State, Leo Ukpong, described the rate at which some states had been borrowing as a time bomb if left unchecked and that the situation would have negative implications for the Federal Government.
“If they (states) are allowed to continue to borrow money to pay salaries and to do other things, it would create problems and could destroy our debt rating,” Ukpong said in a telephone interview with one of our correspondents.
He noted that the direction of the country’s Gross Domestic Product had been downward in recent times, lowering from seven per cent in 2014 to 2.35 per cent in the second quarter of 2015.
“We need to put the right policies in place,” Ukpong said, adding that the government should scale up other non-oil sectors of the economy, especially manufacturing.
He said foreign investors were still willing to invest in the country but awaiting the economic team and policy direction of the President Muhammadu Buhari-led government.
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