This is the most consequential inflection point in all the plots in Nigeria which have been flipping recently. Simply, the next generation of Nigeria could be poorer than the current one if we do not reverse it urgently. Of course, I am not sure the current generation is doing amazingly fine! Do not make this a political thing (APC or PDP, Buhari or GEJ or OBJ) – see this as an entrepreneurial capitalism challenge.If Apple Corp is Nigerian, generating our national budget every 6 weeks on revenue (with the associated taxes), all these plots will align in phase.
Seriously, Nigeria is running out of luck with international market for borrowing, and the Central Bank of Nigeria (CBN) has been financing government. The 2016 recession caused massive dislocation and changed the equilibrium of things: the CBN loan to federal government of Nigeria (FGN) exceeded the FGN deposit with CBN. In 2019, the net loss is projected to hit N5 trillion. That is a very big number. You can say we are eating more than we can produce! You know the implication of that – you are stealing from the future.
Interestingly, the FGN improved deposits,possibly because of the TSA implementation. Unfortunately, more money is going out as population continues to grow, faster than the economic growth. Also, you can blame the Boko Haram and other pockets of security issues for the massive spending.
Largely, what is happening here is that government cannot effectively borrow internationally. So, it relies on CBN to finance its spending. And CBN keeps selling treasury bills (TB) in the local market to sustain the party.
Pure and simple – the party will end one day, and unless FGN gets improved tax receipts, the CBN playbook will derail the growth of critical sectors as the treasury bills financing is taking good money investors would have put in companies into the hands of government. That is a concern as CBN can make TB to return 20% annually (from sub-14% today) to keep making it exciting to investors.
Nigeria needs growth urgently to finance spending for its growing population. Otherwise, I am not sure how we can come out of this paralysis. I just hope they do not focus on more taxes alone to reconcile these net losses. The playbook must be growing the economy which will then activate more taxes!