The presidential election in Nigeria is expected to take place on February 25, 2023. Accordingly, the three leading contenders — Peter Obi of the Labour Party, Bola Ahmed Tinubu of the ruling APC, and Atiku Abubakar of the People’s Democratic Party — have just one month to get ready for the most significant election in the nation’s democratic history.
Regardless of who wins the election to become the next president, they will take over a nation that is bitterly divided, has a fiscal imbalance of N11.3 trillion, and has a volatile currency.
According to a recent Nairametrics analysis, Nigeria’s overall debt stock reached $101.91 billion as of the end of September 2022, and the N11.34 trillion deficit in the 2023 budget would be paid for by local and international sources, including multilateral and bilateral loan drawdowns.
The severe economic difficulties in Nigeria
The Ways and Means Advances from the CBN may be securitized, according to the latest information from Nigeria’s Debt Management Office (DMO), leaving the future administration with a public debt of N77 trillion.
Additionally, after reaching a record low of nearly N900/$1 in November of last year, the exchange rate, which started 2022 with N587/$1 on the black market, declined to N745/$1 in January 2023.
All of these suggest that the incoming administration may need to implement prudent monetary and fiscal policies right away. However, what sort of economic strategies are they suggesting? Look at it now.
How the candidates want to affect Nigeria’s economy
Bola The All Progressive Congress’ Ahmed Tinubu thinks that Nigeria must sever the direct connection between naira outlays and dollar inflows into the economy in order to salvage its fiscal position.
Additionally, he stated that the Fiscal Responsibility Act must be violated in order to suspend the restrictions on government expenditure. He said,
“Examine federal budgetary methods” Our annual budget and fiscal plans are heavily based on predicted oil earnings in terms of dollar value. This strategy not only unnecessarily narrows the federal government’s economic options, but it also unfairly focuses the country’s emphasis on one particular source of tax revenue at the expense of others.
“We must wean ourselves from this restriction if we want to have long-term optimal growth. The predicted level of government expenditure that maximizes growth and employment without producing intolerable levels of inflation would serve as the foundation for our budgeting, which would be a more effective fiscal system. We will create a definite and obligatory inflationary ceiling on expenditure as part of this smart growth-based budgeting.
“However, the direct connection between naira spending and dollar inflows into the economy must be broken. In a manner similar to what the European Union has done, we too must be practical and suspend legislatively the caps on government expenditure during this protracted period of economic instability, which is further worsened by internal issues in security, the economy, and demographics.
According to Peter Obi, Nigeria must first address its security concerns before restructuring its political system to reflect comprehensive legal and institutional reforms that firmly establish the rule of law, eradicate corruption, and lower the cost of governance.
Regarding his economic policies, Obi claimed that the numerous exchange rate regimes only offer a significant chance for arbitrage for a small number of affluent individuals and that the Ways and Means Advances to the FG have fueled inflation. Additionally, he stated that his fiscal and monetary policies will be properly integrated by using traditional methods in a transparent manner rather than manipulating markets to the advantage of a select group of individuals. He said,
In regards to macroeconomic reform, he further stated that Nigeria’s fiscal policy is rife with flaws that have gradually harmed the economy. The oddities, in his opinion, are:
the CBN’s pursuit of several goals, some of which appeared to conflict with the bank’s primary mandate of managing inflation and its stated goal of establishing some level of exchange rate stability;
loss of the federal government’s ability to balance its budget because debt servicing now consumes all income and because the price of the inflated gasoline subsidy has climbed to the point where it also poses a threat to do the same;
The funding of excessive budget deficits through Ways and Means Advances beyond N22 trillion as of August 2022 (i.e., a level well above the statutory limits stipulated in the CBN Act) has contributed to the rise in inflation to close to 20% per year.
Exchange rate stability has also turned into a mirage because most Nigerians can only access foreign exchange through a parallel market where the US Dollar now commands a premium of between 75 and 80 percent over the official rate, while a small group of privileged individuals and businesses can access it at the manipulated official exchange rate.
He cited how the predominance of repatriation risks and other supply-side restraints have considerably eroded investor confidence while also driving capital flight and warned that the current multiple exchange rate environment creates a big arbitrage opportunity for a few fortunate individuals.
“Our administration will only back policies that provide an even playing field and adhere to international best practices.”
In order to increase a sector’s competitiveness, transparent, well-targeted fiscal and trade policies that encourage investment and growth must be implemented.
Holding those in positions of authority fully responsible will ensure that revenue shortfalls and leaks, such as oil theft, are dealt with swiftly.
He argued that lowering the cost of governance is a crucial step toward achieving fiscal sustainability and promised to swiftly study and put into practice the recommendations of the Steve Oronsaye Commission on the reorganization of the Federal Civil Service.
Atiku Abubakar stated that his administration will increase the inflow of foreign direct investment to a minimum of 2.5% of our GDP by 2030. He specifically mentioned increasing the flow of FDI into the non-oil sector.
The following were some of the key areas of the economy that his administration wanted to concentrate on:
“Aiming for the lowest corporate income tax rate in Africa.”
By significantly expanding its capital base, infra-credit will be able to strengthen its initiatives for credits that are guaranteed.
“Simplifying the complicated legislative and regulatory framework that is connected with the multitude of frequently discretionary investment incentives.”
Regarding his plans to maximize the fiscal space, he stated that the current scenario in Nigeria, where revenues are low in absolute terms, poses serious challenges to the country’s long-term growth and development.
“Nigeria’s tax to GDP ratio, which is one of the lowest in the world and abysmally low at 6%, is far below potential.
The resources given by taxes paid by the public sector (10.3%) are insufficient to meet Nigeria’s development expenditure needs (14% of production).
He advocated the following financial measures:
Reforms at home to raise IGR
Boost export growth to boost foreign exchange earnings
the effectiveness of your spending
Finance initiatives via project-specific bonds, public-private partnerships, and other methods (SUKUK)
Combine government-owned enterprise revenues and capital expenditures.
In order to restore integrity, rebuild fiscal-social contracts and create fiscal buffers to absorb shocks.