COVID-19: Moghalu tasks FG on economy, seeks reduced governance cost

Prof. Kingsley Moghalu, a former Deputy Governor, Central Bank of Nigeria (CBN) has urged the Federal Government to seize the challenge of COVID-19 pandemic to commence far-reaching restructuring and repositioning of the nation’s economy.

Moghalu, a political economist and Young Progressive Party (YPP) presidential candidate in 2019 general election, gave the advice in a statement on Thursday in Lagos.

He said: “A combination of the COVID-19 pandemic and the crash in oil prices has created a perfect storm for Nigeria’s economy — which was already fragile even before COVID-19.

“I believe the government and people of Nigeria should seize the moment to commence a far-reaching restructuring and repositioning of Nigeria’s economy.

“I make this suggestion based on my strong view that our 100 million countrymen and women who live in extreme poverty, giving us the title of “poverty capital of the world” are not poor because we lack intelligent economists.

“Nigerians are impoverished by their country’s politics, politicians, and by its unworkable constitutional structure which creates perverse incentives that ensure the country is locked into the resource curse of oil.”

According to him, Nigeria’s borrowing trend without structural economic and constitutional reforms, in an age of declining oil revenues, is to postpone the evil day.

The professor of International Business and Public Policy said that the nation’s fundamental problem was her extreme reliance on oil for revenues and lack of fiscal savings.

He said that part of the problem was the nation’s unwillingness to cut the bloated costs of governance and restructure Nigeria constitutionally to make its economy more productive.

Moghalu, also a lawyer, said that the Nigeria’s economic challenges could not be solved by borrowing for balance of payments.

The political economist said: “We need more than $7 billion to solve the balance of payments challenge, but that is not the point. If, as is likely, oil prices remain low for sometime, this is just band aid.

“With these loans, our reserves position may improve temporarily.

“Central Bank of Nigeria will restart intervention to create artificial strength for the naira, and those who don’t understand the fundamentals of economic transformation will think we have overcome our problems.”

According to him, the nation needs to be mindful of a further implication of the many loans the Federal Government seeks to take.

He said that borrowing so much without a real source of revenue to repay will likely result in a sovereign debt crisis.

Moghalu said: “While we are told that our ratio of debt to our GDP is a moderate 21%, the more relevant ratio is that of revenue to debt servicing which is in the region of 60% or more.

“This means simply, that nearly two-thirds of of our country’s revenues go to debt servicing. Nigeria is entering a dangerously vicious cycle.

“We need to re-incentivise the economy to be productive. The surest way to do so after the COVID-19 crisis subsides is to wean ourselves of oil dependence by commencing a constitutional restructuring.

“The one that devolves far more powers to regions (not states, many of which are not viable on their own) so they can make use of the economies of scale to create viable regional economies.”

According to him, as the oil prices depress due to global economic recession, in the meantime as well, the Federal Government should deploy at least $500 million of the Rapid Financing Instrument from the IMF to the establishment of a venture capital fund.

He said that such funds should be used to provide equity capital to unemployed youths — with a skills training component, urban slum and rural unemployed citizens to start new, small and micro business ventures.

“The fund will be a co-owner of the businesses in order to ensure return on investment and corporate governance.

“This venture capital Fund should be run by the private sector based on a PPP arrangement and transparent guidelines that guarantee equal access to qualified Nigerians in all parts of the country.

“This is necessary to stimulate the economy and address the increased unemployment brought about by the COVID-19 crisis,” he said.

Moghalu advised the government to commence hedging contracts on the price of oil as soon as the oil price recovers to a level that makes this a viable option.

While appealing for a drastically reduced cost of governance, he urged the government to ensure that the 2021 budget allocates not less than 15 per cent to health and education respectively.

According to him, there is also a need for the restoration of fiscal savings through an oil price rule that determines a percentage of oil revenues that must go into a savings fund.

He urged the FG to convoke a constitutional conference to prepare a framework for a new Nigerian constitution that would restore Nigeria to genuine federalism on the basis of six or more geopolitical and geo-economic zones.