A former deputy governor of the Central Bank of Nigeria (CBN), Kingsley Moghalu, has advised Nigeria to begin an extensive restructuring and repositioning of its economy.

He said the combination of the Covid-19 pandemic and the crash in oil prices has created a perfect storm for Nigeria’s already fragile economy.

Mr Moghalu said this in a statement “Nigeria’s Covid-19, Oil Price Crash and Fiscal Crisis Calls for a More Fundamental Response.”

“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”.

He referred to the federal government borrowing from the International Monetary Fund, the World Bank and the African Development Bank without structural economic and constitutional reforms as ” postponing the evil day.”

“The fundamental problem is: our extreme reliance on oil for revenues, no fiscal savings, and unwillingness to cut the bloated costs of governance and restructure Nigeria constitutionally to make it’s economy more productive, cannot be solved by borrowing for the balance of payments.

“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 some time, this is just bandaid”.

He said the loans will only improve the country’s reserve temporarily and create an artificial strength for the naira. This he said, does not mean the country has overcome its economic problems.

“We also need to be mindful of a further implication of the many loans our federal government seeks to take: borrowing so much without a real source of revenue to repay will likely result in a sovereign debt crisis.

“While we are told that our ratio of debt to our GDP is a moderate 21 per cent, the more relevant ratio is that of revenue to debt servicing which is in the region of 60 per cent or more. This means simply, that nearly two-thirds of our country’s revenues go to debt servicing. Nigeria is entering a dangerously vicious cycle.”

Recommendations at the moment

To arrive at a productive economy even after the pandemic, Mr Moghalu recommended that the country weans itself off oil dependence by commencing a constitutional restructuring that devolves far more powers to regions.

“In the meantime, if and when the oil price returns to $40 or above the Nigerian government must enter into hedging contracts to protect our oil price at a “floor” price regardless of the fluctuations of the market.”

He said the hedging proposal is simply a holding pattern until the country diversifies its economy by restructuring its political foundations.

He advised that the federal government deploys at least $500 million of the RFI from the IMF to the establishment of a venture capital fund to provide equity capital to unemployed youth(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.

“It is clear, from experience with the Covid-19 palliatives debacle, that the Nigerian authorities lack the infrastructure and capacity to run an efficient and effective country-wide program of such magnitude and potential impact.

“This is necessary to stimulate the economy and address the increased unemployment brought about by the Covid crisis.”

He called for the deployment of $500 million from the $3.4 billion IMF loan to boost employment and sustainable wealth creation for the extremely poor and the unemployed through a venture capital fund.

He also advised the commencement of the hedging contracts on the price of oil as soon as the oil price recovers to a level that makes this a viable option.

Drastic reduction in the cost of governance.

“Ensure that the 2021 budget allocates not less than 15 per cent of the budget to health and education respectively. This allocation should be for capital investments and reforms, not for recurrent expenditure”.

He also recommended: Restoring fiscal savings through an oil price rule that determines a percentage of oil revenues that must go into a savings fund; and that Nigeria should convoke a constitutional conference to prepare a framework for a new Nigerian constitution that restores Nigeria to genuine federalism on the basis of six or more geopolitical and geo-economic zones.