No fiscal common sense

Daily Trust reports the federal government are dipping into the Excess Crude Account to pay for the oil subsidy for fuel imports.

So we lose windfall savings money from the Excess Crude Account, lose money/GDP by importing crude rather than refining it, and lose money/GDP/potential-tax-revenue by selling petroleum products at below-market prices. Investment capital burned for nothing gained.

The oil subsidy disproportionately benefits wealthier Nigerians over poor citizens, but even so, I understand the political motivations that drive citizens to fight for it (and to dodge taxes). It is not just the usual issue of people believing that transferring more money to the government (directly or indirectly) will just mean more for them to waste or steal. It is not just a question of cars and cooking. When it comes to items like electricity and potable water, a majority of Nigerians either provide their own services (generators powered by fuel for electricity, and boreholes powered by generators for wter) or do without. Beyond products and services directly related to fuel, the people of Nigeria are each operating with personal incomes of X, which has to cover all of their expenses, and the higher the proportion of X each citizen spends on fuel and petroleum products, the lower the proportion and absolute amount they have left to spend on food, school fees, healtchare, rent and everything else. For most Nigerians, X is already too small to meet all their expenses, so people get apprehensive when you tell them you are going to do something that will result in an increase in all prices across the board (fuel price increases raise the prices of everything), without a concommittant increase in their wages/salary. Unionized workers, particularly public sector workers, are usually able to fight for a wage increase (which actually destroys any fiscal benefits accruing from raising fuel prices), but the majority of Nigerian workers are neither unionized, nor work in the public sector.

Nigerian citizens know that below-market pricing leads to fuel scarcity, low levels of investment in electricity-generation, etc, etc. At the same time, Nigerian citizens do not trust the government or the private sector, and fear that raising the price of fuel will deny them even the possibility (when there is no fuel scarcity) of funding their own electricity/water, without replacing this supply with affordable public-sector or private-sector supply. Asking citizens to pay more for fuel or taxes registers in their minds as if you asked them to give up a bird in hand, in exchange for the promise of two birds in the bush ... after you have repeatedly made such promises in the past and never delivered on them.

Conversely, inasmuch as every Nigerian government since the end of the Oil Boom 1970s has dreamt of ending the subsidy, I understand the political reasons why they don't. There are governments all over the world with real democratic legitimacy that are cowardly scared of touching senisitve political and economic issues, much less the succession of Nigerian governments that have never had anything approaching democratic legitimacy. You would think that because Nigerian governments are not really dependent on citizen voting to retain power, that they would be bolder, but the opposite is true; substantively elected governments can rely on citizens and (more importantly) institutions of state to guarantee their electoral terms of office, whereas widespread anger among the people of Nigeria has always been a useful excuse for anyone seeking to ovethrow governments -- and if they smile a lot and overturn the unpopular measures, citizens who are generally apathetic to the comings and goings of unelected leadership will warm up to them, at least for a short while.

At some level, governments around the world would rather pursue fiscally stupid policies even if they raise debt levels to the brink of bankruptcy, rather than face their citizens and tell them they have to pay more for anything (or in the case of welfare states, that they have to give up benefits of any kind). practice the "bread and circuses" method, even if it drives public debt levels to the brink of bankruptcy.

We can't afford that sort of governance in Nigeria. Indeed, our inability to fiscally adjust to the end of the Oil Boom is what eventually led to our $35 billion debt crisis, not to mention contributing to the economic stagnation of the 1980s and 1990s. We built up no reserves after the 1970s, and had made no GDP-boosting capital investments; we could have revolutionized electricity-generation, built an easy-access dualized highway system or even overhauled, expanded and developed the railroad system, but we opted instead to ... well, what did we do in the 1970s anyway?

The fiscal gains of the mini-boom of the 2000s are dissipating, even as the Excess Crude Account and the External Reserves have dropped precipitously.

The sad thing is none of these issues factors into our political debate. We are not debating and discussing what to do about this. Between the farcical federal executive, the violence in Jos and a renewal of terrorism in the Niger-Delta , we are still stuck in the same chains of self-defeat that have tied us down since the 1950s.

Above all, we are not going to be able to move to a new era of fiscal common sense until the citizens feel in their hearts that they have ultimate control of the fiscal decision-making (through substantively democratic elections), the constitutional right to choose the person (and the plan) for spending the extra scarce personal finances.

We have apparently spent something like =N= 1 trillion (approximately $6.7 billion) in the last three years on the oil subsidy. Wow!

(EDIT 19-03-10: The federal government has decided to increase the size of the 2010 budget. The year's budget deficit, already at 4.79% will rise. This will be financed by borrowing. We paid $12 billion in potential investment capital to secure $18 billion of debt cancellation, in order to save $1 billion a year in debt servicing. Whatever you have heard about $3 billion a year, the truth is the actual increase in annual spending made possible by the debt cancellation deal was $1 billion. At a certain point (if we have not reached that point already) debt servicing for new debts will reach $1 billion a year, in which case we would have paid $12 billion money that could have gone to electricity or rail transportation in order to save ... nothing.)