Rislanudeen Muhammad is the Chief Executive Officer, Safmur Investments Limited; a seasoned banker, who spent 8 years with Unity Bank Plc, where he served in several managerial positions and then later rose to become Acting Managing Director/ CEO. In this interview with Aminu Imam, he spoke on issues bordering Nigerian economy, budget and price of oil, among others.
How would you appraise the performance of the 2014 Budget with less than 2 months to the end of the year?
The 2014 Budget was tagged: “Budget for jobs and inclusive growth”. Growth rate target of 7% was projected especially in areas of agriculture, housing and services. Programs and policies towards creating economic buffer against exogenous shocks, especially oil price fluctuation, were well articulated.
Within the year, GDP rebasing was achieved thereby making Nigerian economy the largest in Africa and 26th in the world with a GDP of USD510 billion and growth rate reviewed down to 6%.
While some projects were implemented seamlessly, I think security has direct negative effect on implementing projects in the North, especially North-East. The remaining part of the year will be turbulent and hard, realistic macroeconomic decisions must be taken post 2015 election.
What is your take on the recent Executive proposal to review downward the benchmark price oil from $78 per barrel to $73 per barrel for the 2015 Budget?
The federal government decided to review the major macroeconomic assumptions in the 2015 to 2017 medium term economic framework/ fiscal strategy paper. Oil price bench mark was reduced from USD 78 to USD73 at an exchange rate of N162.
Subsidy bill was reviewed down to N614 billion from N1.2 trillion. Kerosene subsidy was also down to N156 billion from N250 billion. Petrol subsidy was also reduced to N458 billion from N971 billion earlier proposed. Oil production was optimistically put at 2.2 million barrels per day for 2015, 2.3 million in 2016 and 2.4 million in 2017. To me, the measures taken are in the right direction and realistic.
I commend the Coordinating Minister for economy for that pro-active step. In fact, while appreciating the difficulty in having a political consensus especially at National Assembly, realistically the oil benchmark is too close from its current price and should be reduced further to at least USD67.
Do you share the view that Nigeria is ‘broke’, given that the Federal Government is increasingly finding it difficult to fulfill many of its financial obligations because of the downward spiral of oil prices in the international market. And if so, what do think is the way out?
Nigeria is definitely not broke; but must rise to the challenge of facing and dealing with hard economic facts realistically. First, we must diversify away from oil and stop relying on oil heavily for our foreign exchange earnings. Recent GDP rebasing has shown that we can do it and opportunities are there.
We are not broke, but are in for a serious belt-tightening. The austerity measures already announced by the Federal government ought to be implemented immediately, especially taxes on luxury items like jewelry, wine, private jets, yachts etc.
Other belt-tightening policies like issue of petroleum products subsidy and floating the exchange rate may realistically be difficult to implement with less than three months to election.
The Monetary Policy Committee (MPC) will try to take some measures, like increase in Cash Reserve Ratio (CRR), to reduce money supply and achieve some cosmetic exchange rate stability.
Beyond that, we must also improve on our tax administration system at both Federal and State levels to minimize tax avoidance and enhance the revenue base.
A recent Ecobank research has it that the CBN may devalue the Naira by 15% due to the recent drop in global oil prices and sustained pressure in the interbank market owing to stronger dollar demand. Do you support this likely move by the CBN?
The MPC of the CBN is responsible for ensuring monetary, exchange and interest rate stability. From purely economic point of view, given eroding reserve, high propensity to consume foreign goods, weakening forex earnings from oil, exit of hot money (short term FDI), due in part to end of US Fed tapering, increasing difficulty for the CBN to intervene and protect the naira in the interbank market, it is simply a matter of time before the Naira is allowed to float; or to say it vividly, some kind of devaluation of the currency is made.
In fairness, factors impacting negatively on stability of exchange rate are exogenous to CBN. If OPEC agree on production cut in their November 27, 2014 meeting and price stabilizes, that may bolster CBN’s capacity to defend the naira. Difficult as the decision is, CBN may find it increasingly difficult to defend the naira, as there is a limit within which they can draw from reserves to do that.
My feeling is that the hard decision on petroleum products subsidy, in addition to other fiscal measures, will be taken after 2015 election.
What in your opinion should be the focus of 2015 Budget, in view of the global economic climate?
The major focus of 2015 Budget should be cost-cutting, enhanced efficiency in our tax administration and aligning our depleting resources to our expenditure profile.
Even though the threshold of fiscal deficit as percentage of GDP has widened (3% of USD283 billion before rebasing to 3% of USD510 billion after rebasing), I recommend we should be extra careful in any future borrowing.
There is also no basis for huge recurrent expenditure of 73% against 27% capital expenditure as in 2014 budget. Recurrent leakages need to be blocked. Focus should be more on completing on-going projects from the limit of our resources.
The difficult decision in allowing the exchange rate to float and further reduction/withdrawal of petroleum products subsidy will have to be taken. The CBN and MPC will have a very difficult task defending the naira, as there is no underlying reserve to support that.
Monetary, exchange/interest rate stability and inflation may be a big headache. Government should focus on youth empowerment and job creation.
Special package should be put in place to support the 17 million or so registered SMEs, via some kind of intervention programmes, in view of their multiplier benefits towards job creation.
Power sector reform need to be fully consolidated as it is the common denominator for any sector’s development. Agriculture should also be given top priority to enhance job-creation and food self-sufficiency, especially now that imports will be very expensive given the weakening value of Naira.
Above all, we should by now be more prudent and put in place effective legal framework to support saving any money due to excess crude into the Sovereign Wealth Fund, as other countries have done effectively.
In addressing the lopsided development/skewness in income distribution between North and South, Government must deal with insecurity situation in the North-East decisively and bring it to an end.