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00:00 Kim's finance and coordinating minister for the economy, Walidun, says the country
00:06 cannot rely on borrowing to fund the 2024 national budget.
00:11 Meanwhile, the Senate committee scrutinizing the 2024-2026 medium-term expenditure and
00:18 fiscal strategy paper have also raised concerns over the ability of revenue-generating ministries,
00:24 departments and agencies to meet their targets.
00:27 Paul Elahjeh, senior economist at SBN Professionals, joins me now to discuss Nigeria's debt profile,
00:33 inflation and the CBN shift to autodoxy.
00:37 Thank you so much for joining us on the show today, Mr Elahjeh.
00:39 Let's really start off now with your reading of the October inflation numbers.
00:43 The impact of inflation on GDP growth rate and interest rates has been the big conversation
00:49 since the release of the report this week.
00:53 Now for an economy like ours in stagflation, how dire is the picture from your perspective?
01:00 Well we are in a dire situation.
01:01 Let me first say thank you so very much for having me.
01:03 We are in a dire situation.
01:05 Inflation has gone so high.
01:07 I think inflation has taken some prising liquor.
01:11 It's on the high now at 27.33% higher on year-on-year basis, even though it might have slowed on
01:19 a month-on-month basis, but in the real sense, when you compare what people are going through
01:23 in terms of prices and how value of income is getting eroded, of course it had implication
01:30 on the gross domestic product, whether you're using income approach or expenditure approach.
01:35 It means the real growth is expected to reduce and that is why we have projected that for
01:39 2023 GDP growth rate, Nigeria is expected to be around 2% to 2.5% as against what we
01:46 had last year of about 3% GDP growth rate.
01:50 Interest rate is another conversation entirely.
01:53 Cost of borrowing money or putting money in the hand of course is expected to go high,
01:57 which will make business even to be more difficult.
02:00 When it comes to return on investment, inflation is already taking some of the key values that
02:06 one is supposed to have, or businesses are supposed to have on their return on investment.
02:11 Inflation the way we see it, it's still not gotten to the point of deflection.
02:15 So we are not expecting inflationary figures to reverse or to remain static, because as
02:21 we approach the ember period, this is November already, you know in December it is expected
02:26 that inflation will go even much higher.
02:29 We'll look at what November figure will be in December and of course what December figure
02:32 will be by January.
02:34 But I can tell you that the impact of this double digit inflation that seems to be similar,
02:40 very close to what we had during the civil war at 27.33% is really not what is wanted.
02:47 And I understand, I understand that this is not just in Nigeria.
02:50 We have high inflation in Egypt, we have high inflation in Kenya, we have high inflation
02:55 in South Africa.
02:56 But the truth is, why should we be having this inflation, or what are the drivers of
03:01 this inflation, food inflation?
03:02 The last count revealed that it's more than 30% core inflation.
03:06 It's also very high.
03:08 They have not been able to provide key fundamentals to address inflationary pressure, to address
03:13 drivers and the theater of inflation.
03:16 Both are two conversations that authorities in Nigeria must find solutions to.
03:21 If not, I'm afraid, if the new promises government is saying it wants to do to people, the cushioning
03:27 effect of subsidy remover, which of course was one of the things that led inflation to
03:32 further increase, at the point where we are seeing it now.
03:36 And also devaluation of Naira, because that is what we spend here.
03:40 We don't find key solutions to our real issues.
03:43 Yes, stability, which is price stability, which inflation tried to measure, will continue
03:47 to be a thing of concern for us in the coming months.
03:51 And talking about the picture and the coming months as well now, we've heard a whole lot
03:55 of reaction to the new CBN's governor saying that the central bank is shifting its focus
04:02 back to its primary focus of price stability.
04:05 That's the end game.
04:06 But for you now, let's paint case scenarios of what might likely happen at this month's
04:12 monetary policy committee meeting.
04:14 We are not certain about a date here, but going by the previous calendar, by the 20th
04:18 to the 21st, we should expect a meeting, but nothing new has been said so far about whether
04:23 or not that would hold.
04:25 But for you, case scenarios here, where we are talking about the shift towards orthodoxy.
04:30 Well, I can tell you the countries between the Devil and the deep blue sea, difficult
04:34 decisions as a head of monetary policy committee.
04:38 If committee says you want to increase rates, that means by increasing rates we have negative
04:43 implication on the business community, because they say that the focus of government or the
04:49 central bank of Nigeria is to fight for stability.
04:52 And we have seen what is happening to inflation, what is happening to exchange rates.
04:56 Then what authorities may be saying is that they want to further increase rates.
05:00 That already has crowded out employment.
05:03 That already has crowded out growth, because if you say you want to increase rates, then
05:07 your GDP of the country may come down.
05:09 Then we might be taking away employment.
05:12 And we need to be mindful that those in finance and trade and other key ministries, including
05:17 housing, they are new in office.
05:19 They are still at the phase where they are drawing up the roadmap of what they want to
05:22 achieve.
05:23 That is one possibility.
05:24 They say, let us increase rates.
05:26 The second scenario is when we say we want to reduce rates.
05:28 And I've seen many people have been advocating for reduction in rates, or like what we have
05:34 now.
05:35 Can we have a major reduction in fares?
05:36 President Bola Tinubu has said that there is no reason for people to be forced to have
05:41 these kind of high interest rates.
05:43 But that is not without its cost.
05:45 It is important for central bank and those who want to know the implication of taking
05:51 an economic decision, they need to understand that when we reduce rates, then we might be
05:56 having even more inflation, because that will induce money supply, M1 and M2.
06:01 And already the inflation is at 27.33 percent.
06:04 And we now tamper with any economic variable that has tendencies to have a robust implication
06:11 on the entire economy.
06:12 Then we can say that we are in for a big game.
06:15 Let me explain how economy works for you.
06:17 I don't know if you play snookers and those watching us across the globe.
06:22 Economic decision is like playing that white ball on a snooker board.
06:26 When you hit it, you are better prey that the right ball you want is what gets to the
06:31 hole.
06:32 If it's the wrong ball, then you lose a chance.
06:34 If it is the main ball, maybe the black ball that gets to the hole, then it's the end of
06:37 the game.
06:38 Nigeria and some Africa continue to hit the wrong ball.
06:42 And instead of moving forward, we kept losing opportunities and chances.
06:47 We kept losing investment.
06:48 So the central bank would have to play the snooker ball.
06:51 I don't know what ball they will put, whether it's going to be to increase interest rates
06:55 or to stay on the face or to reduce interest rates.
06:59 But whatever ball they put in that particular hole, this may be the final shot at combating
07:05 stability in Nigeria in the coming period.
07:08 And with an understanding that the country literally is running out of time, there's
07:12 the need to have sound, comprehensive policies that weigh the different options on the table.
07:17 That has also been one of the questions, whether or not the government really understands the
07:21 gravity of each policy statement or words or movements that they are indicating or signaling.
07:28 Let's talk about debt now.
07:31 Looking at the debt service to GDP ratio and a whole lot more, the latest statement from
07:37 the finance minister saying, hey, Nigeria is in no position to borrow.
07:42 And then we have the counter argument from the Senate committee saying, well, the revenue
07:46 generating agencies, ministries, department and agencies, you're looking to raise revenue
07:52 from and not meeting their targets.
07:54 So then where do we get this money from?
07:57 Because at the end of the day, the biggest challenge is debt.
07:59 And if we are not careful whether or not we expect a monetary, fiscal, structural reforms
08:04 to take place, they might be left irrelevant.
08:07 I agree with you 100%.
08:10 Here is it.
08:11 98% of all revenue, as at the last count, is what we use to service debts.
08:18 We did not use them to even buy yachts or to pay the member of National Assembly or
08:22 use them as 168 million vehicles that member of National Assembly are requesting for.
08:28 No.
08:29 We use 98% of all revenues to service debts.
08:33 So how are we going to pay civil servants?
08:35 If people are going to steal, which is wrong, but from where?
08:38 It means we'll be looking to borrow.
08:40 And perhaps that is what the Minister of Finance and Planning, coordinating minister of the
08:46 economy, is referring to.
08:47 So here is it.
08:48 If you have a GDP of near $500 billion, a GDP that is in trillions of naira, how come
08:56 that GDP is not enough to help the economy, you know, to generate revenue?
09:02 I think that the strategy we have used over the time in terms of revenue generation has
09:08 not been correct, has not been right, and we have not optimized enough.
09:12 So first of all, those who have the function, who have the responsibility to monitor the
09:18 agencies of government must take a new approach.
09:21 It should not be business as usual, going to agencies of government and expecting them
09:25 to envelope something for those who are representing us and are supposed to perform oversight function.
09:32 If it is business as usual, the truth is that no revenue at all will come to the covers
09:37 of government.
09:38 What you see at best is that that revenue will be going down.
09:41 Let me also give you this.
09:42 When we said that we devalued naira, what we did not know, that we have also devalued
09:46 revenue that we generate from agencies of government.
09:49 Mr. Wali Edun and his team, they are planning to spend a huge amount for 2024 budget.
09:55 The question they've not answered is where will the revenue come from?
09:58 I give you an instance, telco and banking sector.
10:01 During COVID, National Bureau of Statistics revealed that those two sectors, they grew
10:08 at unprecedented rate.
10:10 In fact, one of them grew by double digits growth of over 10 percent.
10:15 Another one, 7 percent growth rate.
10:18 Within COVID, when people were under lock and key in Nigeria, those were among the highest
10:23 growth anywhere in the world.
10:25 You know the shocking thing?
10:26 The revenue they paid to government for that year was among the least claiming that there
10:31 was COVID.
10:32 Meanwhile, COVID was when they had their own economic rainfall.
10:35 So those who are in charge of revenue collection must become more innovative.
10:39 We must not say we want to tax or bring new taxes for people or corporate, but we can
10:43 see those who are prosperous, those who are making more revenue or those whose business
10:49 are not completely affected.
10:50 How do we expand the scope or bracket or target of government so that we can get some of these
10:57 new revenues come to go?
10:58 And I can tell you that the federal government of Nigeria has a window of 30 trillion Naira
11:03 revenue to generate and about 35 or 40 trillion for all subnationals together in the country.
11:11 Where the challenge remains, the area where those who are in government don't want to
11:15 roll their sleeves, they still want to drive their 168 million per head SUV cars without
11:21 knowing where it will come from.
11:24 Yes, every four years, Nigeria wants to cut a check of over 60 billion Naira for Japan
11:29 to import SUVs.
11:31 The question is, we also need to know where to make the money.
11:35 So some of the sectors, again, the Bureau of Statistics report, I hope those in authority
11:40 repeat them because those reports are the sec-based, and I hope that we'll find solutions
11:45 in no time, because I've made a projection that by 2025, if we don't take care, we will
11:52 need to borrow to service debt.
11:54 And you know the implication.
11:55 Even for us to do anything, including anybody to fly to pay any workers in Nigeria for our
12:00 capex capital expenditure, recollected expenditure, 100 percent will come from borrowing because
12:06 we will already be servicing, we will already be borrowing to service debt.
12:10 It's a huge situation.
12:11 It's a big concern we have.
12:12 And remember that the international organization has also projected that the quality of our
12:16 money, Naira, next year will even be worse than what we have now.
12:20 You saw what happened on the official window yesterday, how Naira was battered, you know,
12:26 with heavy punches, and the value came down heavily.
12:29 I hope that in the coming period, those in authority, we do the needful and serve the
12:34 soul of Nigeria, serve the soul of this economy, and more importantly, our currency of exchange,
12:39 which is Naira, so that we can be in a better position to conquer inflation and exchange
12:44 rates.
12:45 These two conversations have to do with stability, stability and stability.
12:48 And I hope beyond monetary solution, fiscal and trade authority will also come in under
12:53 new dispensation of President Bona Sinabu.
12:56 And there's no way we'll talk about unpacking our debt levels without also addressing issues
13:00 around the ways and means loaned, but we'll have to leave the conversation here for now
13:04 at this point in time while we count down to the next Monetary Policy Committee of the
13:08 Central Bank of Nigeria.
13:09 Thank you so much for speaking with us today, Mr. Eladji.
13:12 That was Paul Eladji, Senior Economist at SBN Professionals.
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