Nigeria’s next president inherits the biggest task yet of his recent predecessors as he attempts to find a new path for an economy in turmoil, realtime.ng reports.
Realtime.ng says that the most benign forecasts point to a fiscal crisis if things stay the same in Africa’s most populous country, whose population will be the third highest in the world by 2050.
The uncertain times ahead of Nigeria is why many tagged the 2023 presidential elections as the most pivotal in the country’s history.
For now, Nigeria looks every inch unprepared for a future without oil revenues, which are no longer enough to sustain the country of 200 million.
The outgoing administration tapped debt to fund itself and has catapulted the country’s debt stock to three times the level it was eight years ago.
With the debt stock at over 35 percent, the country’s debt appetite looks fine until the cost of the debt on weak revenues is considered.
Nigeria spent 92.6 percent of its revenues repaying creditors last year, according to the International Monetary Fund (IMF).
The IMF expects the government to spend all of its revenues on debt servicing by 2026, which will be the third year of the new president’s administration.
Rising global interest rates, combined with higher interest rates at home, and the planned securitisation of vast central bank loans running into N23 trillion could see the government give up every naira it earns for debt service before 2026.
The 2023 budget assumes debt service costs of N6.31 trillion as against revenues of N9.7 trillion. Analysts take the budget estimates with a pinch of salt due to years of inaccuracy.
The debt overhang means the new president must find ways to boost government revenue or face a fiscal crisis, which some analysts fear could quickly deteriorate into a Lebanon-type crisis.
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Then there’s the issue of the petrol subsidy, which the president will most likely be the first Nigerian president since 1999 to end.
Ending the controversial and often wasteful petrol subsidy practice that dates back to the 1970s is no mean feat.
Successive administrations tried and failed to do it. The new president may not however have much of a choice but to cut off the practice, which is budgeted to cost the country more than half of its entire projected revenues in 2023.
Fitch Ratings, a global credit ratings agency, said earlier this month that the implicit subsidy on petrol cost the country 2.4 percent of its GDP in forgone revenue from the NNPC in 2022.
“The main candidates promised to remove the subsidy, so the removal is of less interest than how the president will approach the removal,” said Kyari Bukar, former chairman of private sector think tank, Nigeria Economic Summit Group (NESG).
While some, including the IMF, say a social safety programme should follow the removal to help cushion its effects on the poor, others urge a phased removal.
Whatever happens, the petrol subsidy removal will hammer Nigerians already contending with an unprecedented cost of living crisis due to stagnant incomes and high inflation.
The short-term pain will cause Nigerians to be less patient with the President, who must be aware of the risk he faces of quickly becoming the most hated democratically elected president of the country despite clinching popular votes in the tightly-contested elections.
“Nigeria’s next president faces extremely difficult challenges,” said Amaka Anku, Africa practice head and director at Eurasia Group.
“He must ensure that the state delivers what voters have consistently rated as top concerns — jobs, personal safety, better roads — or risk rolling back the democratic gains of the last two decades,” Anku said.
With 1 in 3 Nigerians without a job, the issue of unemployment is a biting one in a country with a large youthful population like Nigeria.
Countries with similar-sized populations invested in human capital, tapped private capital and liberalised trade to create jobs and pull their people out of poverty. In Nigeria’s case the reverse is at play.
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Human capital investment plays second fiddle to expenditure items like the petrol subsidy, private capital is not incentivised as aggressively as peer countries and the outgoing administration was often caught straddling both worlds by claiming to be pro-free trade but shutting its borders at will and embracing currency controls.
A record 20 million children did not go to school in Nigeria last year, a stark sign of the government’s lack of investment in education. University teachers also downed tools and stayed away from classrooms for eight months in 2022. Healthcare has not received more attention, with life expectancy in Nigeria stuck at only 54 years old, one of the lowest globally.
The new president will have to take human capital investment more seriously and adopt free trade policies.
The foreign exchange market is long due for critical reforms, which could prove a game changer in Nigeria as it hunts for foreign investments. The naira, still as volatile as ever against the dollar, is in need of a new lease of life.
Resolving the insecurity crisis that has contributed to the collapse in foreign direct investment must also be high on the to-do-list of the president.
The president may not resume office until after almost three months but the challenges of his new job were well publicised even before the February 25 vote.