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Atiku Writes GEJ: Economy Is Going Broke, 2011 Budget Is Recipe For Disaster

Source: THEWILL. - thewillnigeria.com
PHOTO: FORMER VICE PRESIDENT ATIKU ABUBAKAR.
PHOTO: FORMER VICE PRESIDENT ATIKU ABUBAKAR.
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SAN FRANCISCO, Jan 02, (THEWILL) - Former Vice President and Presidential aspirant of the Peoples Democratic Party (PDP), Atiku Abubakar has again warned that the nation’s economy is going broke and that recently unveiled Budget 2011 by President Goodlcuk Jonathan can only exacerbate worsening state of the nation’s economy.

In an 11-page letter he personally sent to President Jonathan, the former Vice President said that a budget that is predicated on consumption without corresponding investments in critical infrastructure is a recipe for economic disaster.

“At a time of unprecedented oil boom, you have presented Nigeria with a budget of consumption for consumption; a budget of debt accumulation to imperil the future; a budget that is rich in rhetoric and pedestrian initiatives but lacking in any bold step to lay the foundation for Nigeria’s next 50 years or even 20 years,” Atiku said.

The PDP presidential aspirant warned that excessive borrowings that has marked the Jonathan administration as indicated in Budget 2011is in negation of the Fiscal Responsibility Act, has the potentials of returning Nigeria to a regime of debt overhang and making nonsense all the gains of the negotiated cancellation of the nation’s debts.

“I almost wept for Nigeria after reading your 2011 budget, which is your first budget as President of Nigeria. In simple terms, it signals your vision for Nigeria and how you intend to govern. For effect, you proudly announced that this is the first budget of the National Implementation Plan (NIP) for Vision 20:20:20. The rest of the world must be laughing at us. For a summary, you proposed a total expenditure of N4.22 trillion to be financed by a revenue estimate of N2.83 trillion, leaving a total deficit (new borrowing) of N1.4 trillion.

“Mr. President, you plan to borrow 33% of the entire budget, or 3.62% of GDP which is higher than the 3% stipulated in the Fiscal Responsibility Act. Your total debt service is N542 billion (which is higher than your total capital spending on power, roads, health and education put together). Your total recurrent expenditure (including debt service) is N3.023 trillion, meaning that with a revenue of N2.83 trillion, your government plans to borrow money to finance recurrent expenditure even if capital budget is zero.

“Your recurrent budget is 107% of total revenue. Put differently, your capital budget is N1 trillion whereas your deficit or planned borrowing is N1.4 trillion, meaning that even with a zero capital budget you plan to borrow about N400 billion to add to revenue to finance CONSUMPTION. Mr. President, no one needs to be an economist to appreciate that this is a disaster,” Atiku wrote.

He said that it was unacceptable for the government to have recourse to borrowing the entire capital budget at a time of increasing revenue from oil.

“Mr. President, let me draw your attention to the simple meaning of your budget: not one kobo of our oil revenue (at a time of oil boom) is being spent on power and infrastructure. Rather, you plan to spend the entire oil revenue on consumption, and even borrow to consume. Every KOBO of capital budget is to be borrowed. If you continue to borrow at the average interest rate of 14% by the 2012 budget, your borrowing in 2011 will add another N196 billion to debt service payment (and hence by 2012 debt service might be in excess of N738 billion),” he said.

“At the rate you are going, by 2015, debt service payment will be in excess of N1 trillion. If oil price drops below $50, it is evident that Government will not be able to service its debt without austerity measures. Is this what you plan for this country?” Atiku queriedHe noted that the N1trillion capital budget as provided for in Budget 2011 is the lowest in real terms when compared with others in the last seven years.

“...Your capital budget of N1 trillion (to be borrowed) is the lowest in REAL terms in the last seven years! Compare the capital spending in the years when the exchange rate was about N120 to a dollar and inflation in the single digit to your N1 trillion with exchange at N150 and inflation at 14%. Your actual performance on capital budget implementation is about 55% for 2010. If you maintain that, or even if you reach 70% implementation in 2011, your capital spending will just be a few hundred billions in real terms,” he informed President Jonathan.

He continued: “Again, Mr. President, the fact that this is your first budget in the implementation of Vision 20:20:20 is proof that with your government, Vision 20:20:20 is just an empty slogan. A simple back–of–the envelope calculation would show that given the level of private sector and state government investment, the federal government would need to invest at least N3 trillion per annum to have a chance of reaching vision 2020. In your first year of implementation, your capital budget (borrowed) is just one third of that amount. Consider, the fact that even this N1 trillion will not be fully disbursed. If your current record is a guide, then barely 50% of the capital budget will be implemented (or 16% of what is needed for Vision 2020). Please, Mr. President, come clean with Nigerians!”

Atiku said his own articulated plan to restore the nation’s public finance to a path of sustainability is to spend at least 40% of current on capital budget compared to Jonathan’s zero on capital.

“I have put out a plan to restore our public finance to a path of sustainability. Our target is to spend at least 40% of current revenue on capital budget (compared to your government that spends zero on capital). Over the medium term of four years, our agenda is to constrain recurrent expenditure to be fully funded by non–oil revenue while devoting every kobo of oil revenue to capital spending on infrastructure, power, health and education. In other words, oil is a depleting, exhaustible resource, and we must use it to build capacity for the future. We should avoid borrowing but if we must borrow at all, it has to be under stringent conditions. We should borrow only for bankable capital projects whereby the projects must generate the revenues to pay back the loan,” he said.

ATIKU ABUBAKAR’S LETTER TO PRESIDENT GOODLUCK EBELE JONATHAN His Excellency Goodluck Jonathan, GCFRPresident, Federal Republic of NigeriaState House, Abuja. Dear Mr President,

OUR ECONOMY IS GOING BANKRUPT AND YOUR 2011 BUDGET WILL MAKE MATTERS WORSE

I bring you season’s greetings, and I wish you well in the New Year. I feel constrained to write you on this matter of grave national importance. This is not a matter of politics, but a matter of our national survival. I had restrained myself from writing you this letter, but the budget Bill that you recently presented for 2011 has compelled me to act; keeping quiet would be a disservice to our nation.

A number of experts have alerted Nigerians to the precarious situation of the economy, with some even calling for a debate among the presidential aspirants. Your government dismissed the patriotic warnings. I have also invited you to a debate on the economy. I have noted at least 9 newspaper editorials and numerous commentators in support of these patriotic warnings on the economy and advising you to heed the advice. A few weeks ago, the former Minister of Finance and a managing director at the World Bank, Dr. Ngozi Okonjo–Iweala added her voice in condemning the reckless debt accumulation by your government.

Aside from our respected national experts, international agencies have also passed a vote of no confidence on your governance and management of the economy. The international rating agency, Fitch, downgraded its rating of the Nigerian economy, and described its outlook as ‘negative’. In your usual defensive manner, your government criticised Fitch for telling the truth. The World Economic Forum in its 2010 Global competitiveness report was damning. Nigeria dropped from the 99th position in 2009 to 127th position in 2010 out of 139 countries in the world, while other African countries were improving. The World Bank’s “ease of doing business report” also raised a red card to your government on the economy. The Mo Ibrahim report on African governance showed that the quality of governance in Nigeria has deteriorated under your government. The Transparency International’s corruption perception index shows Nigeria’s corruption worsening under your watch. No wonder both our national and foreign investors are visibly expressing their disappointment with your handling of the economy and hence the capital flight.

I had fits of laughter when your government argued that because the $500 million sovereign bond you are floating is over subscribed, it meant a vote of confidence. Sir, it simply means that you are offering foreigners attractive returns on the bond, and any other country’s sovereign bond with similar returns will be oversubscribed in today’s subdued international capital market.

In mid–September when the nation was first alerted about the depletion of foreign reserves, the level of reserves was $36.9 billion. Three months later. It is now about $33 billion.... still on a free fall! President Yar’adua effectively left governance in your hands since November 2009, and our foreign reserves then stood at about $43 billion. So far, you have depleted it by $10 billion. Your Government will go into the Guinness Book of Records as the one that was massively losing reserves at a time of unprecedented export boom. It is either that you have refused to take actions, or that you do not know what to do. If you are simply refusing to take actions, one can only conclude then that you deliberately want to bankrupt the economy before you leave office. But if you do not know what to do, I beg of you, in the interest of Nigeria, to ask for urgent on the economy.

Although the Economy is the whole focus of politics, we cannot and should not play politics with our economy. You seem to be playing politics with our economy by the kinds of feeble excuses you are giving in response to obvious failures.

As a background, may I remind you, sir, that oil price (Bonny light) is at its two year high (about $90 per barrel), and output of oil and condensates is at its peak in the last seven years. Yet, all economic indicators have been on the downward trend since you too over the reins of government in November 2009. Why? In Nigeria’s history, you have presided over the highest budgetary expenditure of over N4 trillion in one year, recorded the highest rate of borrowing in any one year, lost the highest level of reserves in normal times, and had the worst economic growth in the last seven years. From all indications, we are worse–off now than even during the worst global financial crisis, and unless you change course, you’ll probably end up as the worst manager of the economy in our history.

I am alarmed because the future of our country is at stake. I will draw your attention to just a few obvious signs that you have lost it, and comment on some of the laughable excuses/defences your Government is giving to Nigerians.

a. Your 2011 Budget and the future of Nigeria

I almost wept for Nigeria after reading your 2011 budget, which is your first budget as President of Nigeria. In simple terms, it signals your vision for Nigeria and how you intend to govern. For effect, you proudly announced that this is the first budget of the National Implementation Plan (NIP) for Vision 20:20:20. The rest of the world must be laughing at us. At a time of unprecedented oil boom, you have presented Nigeria with a budget of consumption for consumption; a budget of debt accumulation to imperil the future; a budget that is rich in rhetoric and pedestrian initiatives but lacking in any bold step to lay the foundation for Nigeria’s next 50 years or even 20 years. For a summary, you proposed a total expenditure of N4.22 trillion to be financed by a revenue estimate of N2.83 trillion, leaving a total deficit (new borrowing) of N1.4 trillion. Mr. President, you plan to borrow 33% of the entire budget, or 3.62% of GDP which is higher than the 3% stipulated in the Fiscal Responsibility Act. Your total debt service is N542 billion (which is higher than your total capital spending on power, roads, health and education put together). Your total recurrent expenditure (including debt service) is N3.023 trillion, meaning that with a revenue of N2.83 trillion, your government plans to borrow money to finance recurrent expenditure even if capital budget is zero. Your recurrent budget is 107% of total revenue. Put differently, your capital budget is N1 trillion whereas your deficit or planned borrowing is N1.4 trillion, meaning that even with a zero capital budget you plan to borrow about N400 billion to add to revenue to finance CONSUMPTION. Mr. President, no one needs to be an economist to appreciate that this is a disaster.

Mr. President, let me draw your attention to the simple meaning of your budget: not one kobo of our oil revenue (at a time of oil boom) is being spent on power and infrastructure. Rather, you plan to spend the entire oil revenue on consumption, and even borrow to consume. Every KOBO of capital budget is to be borrowed. If you continue to borrow at the average interest rate of 14% by the 2012 budget, your borrowing in 2011 will add another N196 billion to debt service payment (and hence by 2012 debt service might be in excess of N738 billion). At the rate you are going, by 2015, debt service payment will be in excess of N1 trillion. If oil price drops below $50, it is evident that Government will not be able to service its debt without austerity measures. Is this what you plan for this country?

Note, Mr. President that your capital budget of N1 trillion (to be borrowed) is the lowest in REAL terms in the last seven years! Compare the capital spending in the years when the exchange rate was about N120 to a dollar and inflation in the single digit to your N1 trillion with exchange at N150 and inflation at 14%. Your actual performance on capital budget implementation is about 55% for 2010. If you maintain that, or even if you reach 70% implementation in 2011, your capital spending will just be a few hundred billions in real terms.

Again, Mr. President, the fact that this is your first budget in the implementation of Vision 20:20:20 is proof that with your government, Vision 20:20:20 is just an empty slogan. A simple back–of–the envelope calculation would show that given the level of private sector and state government investment, the federal government would need to invest at least N3 trillion per annum to have a chance of reaching vision 2020. In your first year of implementation, your capital budget (borrowed) is just one third of that amount. Consider, the fact that even this N1 trillion will not be fully disbursed. If your current record is a guide, then barely 50% of the capital budget will be implemented (or 16% of what is needed for Vision 2020). Please, Mr. President, come clean with Nigerians!

I have put out a plan to restore our public finance to a path of sustainability. Our target is to spend at least 40% of current revenue on capital budget (compared to your government that spends zero on capital). Over the medium term of four years, our agenda is to constrain recurrent expenditure to be fully funded by non–oil revenue while devoting every kobo of oil revenue to capital spending on infrastructure, power, health and education. In other words, oil is a depleting, exhaustible resource, and we must use it to build capacity for the future. We should avoid borrowing but if we must borrow at all, it has to be under stringent conditions. We should borrow only for bankable capital projects whereby the projects must generate the revenues to pay back the loan.

Limited space will not permit me to comment on the specifics of your budget as every item makes one shudder at the shallowness of thought and vision. When I read your N50 billion initiative on employment, I concluded that truly your government has no idea of what to do. This is another one of those initiatives to provide money for the boys! Nigerians have lost count of all the myriad N50 billion initiatives (N50 billion Micro credit fund; N75 billion Textile fund; N200billion agriculture Fund; etc). In a country with more than 20% urban youth unemployment, you are devoting N50 billion (to be borrowed) for sundry ‘public works’ programme. Sir, N50 billion is just 0.16% of GDP or 1.2% of the budget... you can imagine the impact on the economy.

Please sir, stop the propaganda. Unemployment is a serious national emergency requiring serious minded response. When you spend all the revenue on consumption and borrow a paltry N50 billion for job creation, you make a mockery of the problem.Please, Mr. President, kindly present Nigerians with a budget of hope, and not this depressing budget of doom currently before the National Assembly. We have never had it so bad, Sir!

b) Continuous depletion of foreign reserves

Mr. President, as at 30th November 2009 when you took over, our foreign reserves stood at $43 billion. As I write this, it stands at $33 billion (implying an alarming depletion by about 26 percent). No President of Nigeria has set such a negative record! When we assumed office in 1999, foreign reserves stood at about $4 billion, and by the time we left office (even with much lower oil prices and quantity) we left about $45 billion. During the global crisis, most emerging markets and oil producers temporarily lost reserves. Most of them have also recovered. At the current high oil prices and quantity, and with the global crisis largely over, experts estimate that our foreign reserves should not be less than $52 billion by now. Or, can you, Mr. President, point to other oil exporting countries that are losing foreign reserves at this time?The excuse of your government is that the remaining reserves can still pay for more than three or six months of imports. What a pity! So, are you waiting until the level gets down to three months of imports before you do something? Mr. President, our foreign reserves by the end of 2003 was just $7 billion. Assuming that you inherited $7 billion or $10 billion as total foreign reserves: by now you would be borrowing from the IMF to finance imports at a time of unprecedented oil boom. Do you get the point, Sir? The question, Mr. President, is whether you are supposed to be losing or accumulating reserves at this time. Is this not a symptom of deeper economic mismanagement? Why are you doing this Nigeria, Mr. President?

c) Unprecedented rate of borrowing in our history!

In less than one year, Mr. President, you have accumulated about N1 trillion additional debts (domestic and external). This is the highest level of debt any President has accumulated in any given year in our history. Nigeria has never had it so bad, Mr. President. Why are you in a haste to return Nigeria to debt burden after we came out of it a few years ago?

Your laughable excuse is to refer to debt–to–GDP ratio and conclude that ‘it is still low’, and therefore that you can borrow more. Your target is to raise the ratio to 25%, compared to what you refer to as the international bench mark of 40%. Your defence really convinces me that you do not understand the nature of the economy you are superintending. Which GDP, Mr. President? By the way, why 25% why not 5% or 50%. If 25% is the ratio that makes sense, why will your government in one or two years reach that ratio, thus meaning that there will be no more room for future governments to borrow? But all these ratios do not make any economic sense. For a start, let me remind you that in 1980, the debt–to–GDP ratio was less than 20% but when oil price crashed in late 1981, Nigeria could not service its debt. Why? Does this not make you think again about your debt–to–GDP ratios?

Mr. President, the reason why reference is made to GDP in other countries is that it measures the taxable income (base) for servicing and repaying the debt. In Nigeria, your GDP includes agriculture which is largely peasant–based and non–taxable (or show us the tax revenue from agriculture). The FGN’s non–oil revenue is mostly from excise and import duties, company income tax and VAT. Agriculture accounts for 40% of GDP, and if you exclude it and relate the total debt as at end of September to non–agricultural GDP, the ratio comes to about 28% ... already above your benchmark of 25%. Furthermore, oil and gas sector represents the most volatile component of the GDP and government revenue. For many years in the last 10 years, this sector has been contributing negatively to GDP growth, although oil prices have been soaring. Again, if oil price crashes to say $50 per barrel or less, you know that government would (just as in the early 1980’s) find it almost impossible to service/repay the debt without throwing the country into the worst form of austerity measures.

So, a prudent manager of the economy should be looking at the ratio of the debt to the ‘relevant GDP’ (where ‘relevant GDP’ in Nigeria’s case is non–agricultural, non–volatile (oil) GDP). If you use this ‘relevant GDP’ concept, then debt–to–GDP ratio comes to about 56% by September 2010 ... far above your so- called international benchmark of 40%. All these do not include domestic debt of states and local governments which are part of public sector debt. If we add these, debt to ‘relevant GDP’ ratio would be approaching 70%.

Think about this Mr. President: already your debt service payment, approaching N600 billion per annum is bigger than your capital spending on power, works, and transport, health and education put together! Your debt service payment is already more than 50% of TOTAL non–oil revenue collected by the FGN, and almost 100% of FGN’s SHARE of the non–oil revenue. In other words, and for emphasis if oil prices crashes tomorrow, the government cannot service the debt with non–oil revenue. I am not sure that you know it, but Mr. President, you are hastily preparing Nigeria to be another Greece – that recently defaulted on its debt! More tragic is that you cannot point to tangible projects that the debt has gone into that will repay the money in the future. So, under your watch Mr. President, Nigeria is “over–borrowed” by every reasonable measure! How will our children and grand children repay the debt, Mr. President?

d) Under you, non–oil Economy has worst performance in SEVEN years!

Every time your poor management of the economy is mentioned, your Government comes out with a phony defence by quoting the National Bureau of Statistics (NBS) numbers to show that the economy is ‘growing fast’, at about 7% in 2010. But this is being economical with the truth.

The truth is that under your watch in 2010, with unprecedented oil boom and highest Federal Government expenditure in Nigeria’s history, non–oil GDP growth is the worst in the last seven years. Your so–called GDP growth is just because more barrels of oil were lifted this year than in the last seven years, and so the oil sector’s growth averaged 4.4% this year compared to average of -5.08% between 2006 and 2008, or average of -1.83% between 2004 and 2009. Due to the reduction of crisis in the Niger Delta following Yar’adua amnesty programme, oil GDP growth in 2010 has averaged 4.4% (a whopping 9.48% improvement over the performance in 2006 – 2008). If the oil sector had grown at the same rate as in 2006 – 2008, your GDP growth this year would be a paltry 5.77% (again the worst in the last seven years). Mr. President, according to the same NBS, non–oil GDP grew by an average of 9.67% per annum for the period 2004 to 2009 (including the period of global crisis 2008 - 2009). In 2010, according to the same NBS, it has grown by 8.3% in the first three quarters. Underperforming by about 1.4% of GDP with unprecedented spending, excessive borrowing and squandering more than $10 billion of foreign reserves is your national record. This is consistent with the rising spate of closure of businesses around the country under your watch. Are you aware, Sir, that more than 867 companies have closed in Nigeria since you took over, with more than 240 in Lagos alone? Properly interpreted, your record is as follows: the more money you have spent, the worse the economy has become!

Please, sir, for the sake our Nigeria, I urge you to take urgent steps to re-focus our economy in the remaining 5 months of your administration. I wish you good luck as you do so. Thank you.

Yours sincerely, Atiku Abubakar, GCONFormer Vice President.