Fiscal danger is real, say economists



By Oluwaseyi Bangudu July 14, 2010 12:42AM


Finance experts have raised an alarm that the wide budget deficit and bailouts could slide Nigeria into fiscal danger again, after the country exited its debt overhang in 2005.


Bismark Rewane, managing director, Financial Derivatives Company, an economic research and asset management company, said the nation’s fiscal slide “this time is both from inefficiency and fiscal recklessness.”


Mr. Rewane said Nigeria achieved an orderly exit of about $36 billion debt overhang in 2005, reducing its ratios and achieving credit worthiness, and gained sovereign credit rating, thanks to Ngozi Okonjo Iweala as finance minister under former president, Olusegun Obasnajo. He, warned however, that the country is fast sliding into debt again, as domestic borrowing alone is expected to increase by 31 percent to N1.14 trillion.


Mr. Rewane said concerns associated with the evident fiscal danger include huge risk of leakages and public scandals, bailouts causing more economic challenges as easy money could make organisations less efficient, and the destabilising effect it would have on the currency.


Sunday Salako, a member of National Economic Management Team (NEMT), said the government would really have to be careful in managing its rising debt, to avoid a repeat of the fiscal mess the nation was once entrenched in.“That is supposed to be a source of worry, it’s (a) fact now. We have barely just come out of that debt burden that was weighing down our economy. If care is not taken, before you know it, it would accumulate again.


“The painful aspect is that one government would come and accumulate debt for another government that would have to bear the brunt. We know the government is a large spender, and each wants to outspend the other, sometimes without justifiable reasons. That is what we are talking about,” Mr. Salako said.


No cause for alarm

However, Akinbamidele Akintola, a research analyst at Renaissance Capital, an investment banking firm, said this conclusion may be farfetched.


“The Obasanjo regime made good efforts to reduce debt burden, and that was commendable. With regards to bail out, we really do not have a choice. We need to spend our way out of the liquidity squeeze and lack of credit. It is the only way forward.


“The economy has to be stimulated and the Central Bank is doing all in its power to get this done with the SMEs fund, the Agric fund, manufacturing fund, and the AMCON bailout. All the countries in the world did it (From America, to the UK, to Europe) to protect their economies, and we simple have to do the same. Americans spend billions of dollars to bail out banks, insurance companies, the auto sector, and the real estate market,” he argued.


Mr. Akintola, however, added that caution is needed in spending. “We need to be prudent in our spending, with our budget, and cut out any frivolous spending habits, ensuring that monies are utilised for what they have been set aside to do. We remain a robust economy with crude oil prices at 70 dollar plus. I would only get seriously worried if the price of crude oil was to 30 dollar levels,” he said.


Though the minister of finance has also expressed fears over expectation gap between revenues and planned expenditure, budget funding, recovery pace, and nagging unemployment, officials of the budget and debt management office have said that the debt level of Nigeria and its depleting reserves should not raise concerns, as they are still effectively under control, while higher deficit in the 2010 budget is to stimulate the economy.




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