Bagudu: Tibubu’s Plan to De-risk Consumer Credit, Mortgages Will Revitalise the Economy

The Minister of Budget and Economic Planning, Senator Abubakar Bagudu in this interview on the sideline of the Arise News, KPMG 2024 Budget Day in Lagos, gave an overview of the 2024 budget, plans by the government to de-risk consumer credit, mortgages, agriculture to drive economic growth. He also spoke about the government’s resolve to stay within the limit of borrowing from the central bank and the drive for a private sector led economy. Eromosele Abiodun present the excerpts

Give us an overview of the 2024 signed by President Bola Ahmed Tinubu

I just want to contextualize, the 2024 budget that was passed by the National Assembly, derived from the renewed hope of agenda, manifesto, which President Bola Ahmed Tinubu campaigned and was elected upon.

 Central to that agenda is a reflection of the consensus that the nation has achieved, which is contained in agenda 2050. Meaning, we can grow faster than we are growing, because we should be growing near double digit growth. It is not unusual, it has been done in our country, it has been done elsewhere before and our rate of population growth, our infrastructure needs, is such as that, we should be at that level of growth. In fact, the agenda 2050, which is our long-term plan, says that we need to invest  $100 billion a year to achieve an outcome of about $33, 000 per capita by the year 2030.

And most of that should come from the private sector. So, because of that, the first major thing that President Bola Tinubu did as you all know, on the day he was sworn in, he said, we can’t afford distractions and he removed fuel subsidy, allowed the central bank to determine the exchange rate, just to give the private sector confidence that it’s not going to be a discriminatory macroeconomic polity.

We don’t have the public funds to invest for our development; we rely on the private sector. So, we have to do a balancing act and provide economic stability and certainty, that the private sector appreciates.

 I think we paid attention, we have seen rating agencies, revising the Outlook for Nigeria, we have seen the International Monetary Fund (IMF) saying that inflation will come down. We have seen the market for our bonds, Euro bonds, which is a reflection of how investors think about our country doing better.

So, that’s the context that goes into the 2024 budget. And the $28.77 trillion budget that was passed contains a lower deficit than the 2023 budget, because we want to maintain the signal. And then 39% of the budget is capital expenditure, which is the highest in a very long time in our national life.

When the, there is a core capital, which is N9.19 trillion but most people do not add the capital component of the statutory transfers, which are transfers that go to the National Judicial Commission (NJC), Niger, Delta Development Commission (NDDC), North East Development Commission (NEDC), and a number of them. So, the figure consists of both capital and, so when you disaggregate it and add it, you see that the capital is actually close to N11 trillion.

And spending had increased in all the priority areas, defense and national security, agriculture and food security, infrastructure, roads, housing, and then creative economy, innovation, digital, science and technology, just to underscore the importance of innovation in enabling us to achieve a near double digit growth, as well as the creation of a system of funds, N100 billion for consumer credits, because in some countries, most economic activity is driven by the availability of credit. I don’t have to buy a car and pay 100 per cent. I don’t have to buy almost anything and pay 100 per cent. But here, potential demand is suppressed because not many people can afford to pay 100 per cent for anything.

So, it was recognised that a way to support manufacturing activity is to provide a pool of capital, which can de-risk consumer credit. Equally, N65 billion was provided for mortgages, mortgage de-risking. This is too small in the context of our mortgage need, but the idea is to signal to mortgage providers that we mean business, and we will de-risk mortgage lending so that it’s more profitable. So that the private capital, private mortgage providers who can help us support the millions of homes that are needed will come into the market and boost economic activity. 

Equally, we have provided N100 billion for agricultural fund. This again, just like the mortgage fund, is to de-risk so that companies that will not otherwise come will see that the government is putting its money where its mouth is, so to say, and, as well as N100 billion to support school feeding and better nutritional, nutritional outcomes. We have provided N550 billion in anticipation of a negotiated wage increase with labour unions. So, money has been provided to meet commitments that we anticipate and as well as providing more for capital in the priority areas and to meet our obligations. 

My concern is on the deficit. I know it’s much lower than the previous year. The government still plans to raise N6 trillion from the domestic market and that means that the government will continue to crowd out the private sector, what is your response?

It’s not going to crowd out the private sector because the first thing the president had directed is that we are no longer going to borrow money unlawfully. So the central bank is not going to print money for the government anymore. If, to the extent that we would borrow from the central bank, it is within what the law allows. The law allows, anticipates that every government around the world may need to go to central bank and say, “a consignment is coming next week. I need 5 per cent of the pack this week,” So it’s, not an unusual thing. So that’s why our laws allow that up to 5 per cent. What we have been doing wrong is to go beyond that 5 per cent limit. So now there’s that clarity. 

 Where we are to borrow, we will issue bonds. It’s an option. People can invest. It even provides opportunity for some private investors who have money to buy government bonds. There are those who are looking. So certainly it will not crowd out the private sector. 

 In the summary you gave to us, you alluded to de-risking, part of de-risking in key priority areas, like agricultural, housing, so on and so forth. Is this an omission of your plan not to de-risk, providing credit for MSMEs, since you wanted our new economy to be private sector driven? I think when I talk about the consumer credit, consumer credit affects everyone when we de-risk it and you may recall that in the first budget that was signed into law in July by Mr. President Bola Tinubu, a N75 billion fund was provided for MSMEs to support palliatives, as one of the elements of palliatives, and equally a nano credit fund of N50 billion. 

 So, the technology penetration in the last few years has grown in quantum leap. Today, we have many technology companies that have assisted in de-risking. So, today, with identity, it’s easier to establish the GIS to link activity to a place is very easy. These are all tools that have evolved significantly, and they have provided lenders and others the opportunity to know, to reduce the risk, particularly location and identification risks. 

The National Assembly expanded both revenue and expenditure by adjusting the projected exchange rate, which we thought the Ministry of Budget and Economic Planning should have envisaged. And between the executive and legislature, who could be closer to the realistic exchange rate?

 We chose democracy, and democracy has an opportunity cost. We have seen budget shutdowns in advanced democracies, particularly the U.S. because power is split and given to different institutions. In fact, the person who has the last say in appropriation under our laws as is the legislator, because it is the National Assembly that passes the final document.

  The executives can provide their proposals, just like the President graciously did on November 29. But the wisdom of the National Assembly was that the support exchange rate was much higher than the proposal we submitted. And they felt it should go up just even our revenue expectation from government enterprises. We have a very committed democrat in the President who, despite his opinion, knows that in democracy we have to respect institutions. Not surprisingly, we accepted what the National Assembly said, while calling on them, to join us in tasking everyone through oversight, interrogation and others to ensure that we achieve those thresholds we set for ourselves.

What is the discussion within the government like to ramp up on investment, especially from outside to the country? Is it possible to bring all the ministries into the conversation to realise that each and each is an investment point?

The Ministry of Budget and National Planning is a custodian of the national consensus, which is a perspective plan on where we want to be in 50 years.

Other ministries are literally implementing that consensus. So, we remind all, at all times we engage on inter-ministries meetings that a federation consists of federal and sub-nationals needs an irreducible minimum of investment that should go into our economy per year. The estimate is about $100 billion and only about 16 per cent of it can come from the public sector, meaning we should roll out the red carpet for private investors.

 The President, in his wisdom, also created the coordinating mechanism for the economy under the Minister of Finance and Coordinating Minister of the Economy, Olawale Edun. And we meet all the time. Even at the cabinet discussions and the retreats have shown that we should learn from what has happened both in Nigeria and what is happening elsewhere.

 If you go to many countries, the health sector is largely private sector. Even in Nigeria, we have some first-class hospitals. Maybe in the 70s, we though hospitals could only be built by the government. We are seeing airports owned by companies. We are seeing roads being concessioned. If we recall, when the President was a Lagos governor and we saw how the private sector could drive development even in areas like waste management.

 We understand that there is a lot the private sector can do. There is much money out there in the private space, which we must leverage. The role of public officers is even to lead so that that private capital can come and the President has been doing this. He visited India, the UAE, Germany and a couple of other countries for this purpose. He continues to emphasise the need to interact with investors, meet and hear their expectations.

It has been announced that a coastal railway of over 780 kilometers from Lagos to Calabar is going to be undertaken by the private sector.  We have seen Siemens investing more and expanding; it is supporting us more to expand our power sector. We have seen gas deals sealed. Every day we are seeing deals in different sectors.

We understand that over 90 per cent of our revenue goes into debt servicing yet we continue to add more debt? Why are we piling up debts that do not translate to higher revenue?

Unfortunately in our national life, some things cannot wait. We have many children. We want them to have education. We have security challenge. We need more boots on the ground. So as much as you would want to cut back on borrowing, there is an irreducible minimum that you need to do. So it is a choice.

 And investment in, maybe, security is not like building a house, certainly. So, you won’t see it when you come back, maybe that invisible spending. During Gen. Yakubu Gowon ear, he made the famous statement that money was not Nigeria’s problem. We became more populous country thereafter. Demand for everything – infrastructure and security – started growing. So, we need an irreducible minimum of spending and we don’t have the money to meet that irreducible minimum. Revenue is also a problem. There are countries that collect 50 per cent of their GDP. Most European countries are over 30 per cent; France is about 50 per cent. Italy, I think, is around 38 per cent. Nigeria used to be the second lowest in the world. Think of it – you don’t have revenue and you have irreducible commitments. You are in trouble somehow. But what we recognise this and that is why the 2024 budget, despite the need for spending, we want to make private sector to have confidence in us.

From the economic planning point of view, what are we doing about our exchange rate policies so that prospective investors have confidence in the economy?

Beyond economic planning point of view, the President has signed two executive orders, because we had been deceiving ourselves. We had run a system where we did not have foreign exchange anymore. So even if your desire is to ensure repatriation, you don’t have because you have boxed yourself into a corner. And that’s why the President said let us allow central bank to liberalise the market; let it be a rule-based market.

  If somebody makes legislation today that says every bag of yam must cost N100, the people who hold there will just take them quickly back to the stores and lock them up. So, the steps taken by the President and the Central Bank might be inconvenient now in terms of the fluctuation. But I will believe it will stabilise and get better. Countries that have chosen the route have done better on average in the long run.

Nigeria has not tapped the international bond market in the past two years. Is there any plan to do so this year?

 Well Nigeria officially might not have done so, but the entities like the Bank of Industry have done well in Eurobond market.

So, in terms of improving our credit rating, we appear to be in the junk territory…

No, we are not. We have seen two outlooks and the Eurobond spread for Nigeria have been narrowing, which is a major sign of confidence. Once you liberalise your market, there are investors who reckon that Nigeria economy is big, it will get better and they rightly think that if Nigeria can meet its commitment into the future and with increased growth, even the exchange rate will stabilise. There will be potential for exchange rate gain.

The gap between projected deficits and actual fiscal deficits has been growing partly because of the poor performance of revenue parameters? What are we doing to ensure this narrows in the coming years?

 It is beginning to narrow. The reason we have a significant jump in debt service this year provision from N6.5 trillion to about N8.5 trillion is because we took the interest payment on the N22 trillion ways and means that was securitised on. The nine per cent interest is about N2 billion – a reason we have that increase.

  We are realistic. The first element of conditioning or disciplining yourself is to tell the family that we are overborrowed. Maybe that will resonates. It is very tempting for a minister of budget to want more money for spending, rather than paying debt service. But we must begin to reduce the divergence and provide adequately for that. The major step being taken to narrow the gap is improving tax revenue. Even when the tax revenue comes, it should not be used to fund those things that the private sector can do but on things that will build confidence among the private sector.

How will the budget impact women who constitute about 50 per cent of the population? Also, how will security of oil pipelines and global headwinds such as the war in the Middle East affect the implementation of the budget?

Well, I dare not miss out on women. Because they don’t constitute 50 per cent, they constitute 100 per cent. All of us are a product of their biology and magnanimity. So we are absolutely indebted to them and the budget contains increase in areas, all of which will benefit women.

I don’t know whether you heard this before, when the Ministry of Women Affairs was contemplated, there was a famous woman activist who was even against it. She said that, let there be no thought that we have given you your own and the rest belongs to women.

 Everything is women – education, health, infrastructure, everything. So it should be mainstreamed into everything we do. Because without getting that right, then everything else will go wrong.

So the budget, the agriculture, food security, poverty alleviation, inclusivity, all are measures to ensure that everyone has a pride of place, particularly women. And there are women-specific programmes that Mr. President has just approved, for example, the expansion of the World Bank Nigeria for Women project, $550 million, which was taking place in some pilot states, but now to be extended to, and even in the choice of beneficiaries, he has always emphasised more women for government programmes.

  Headwinds, yes, the international economy is affecting everyone, but luckily for us, we are an economy with a strong absorptive capacity, even as challenged as the international economy is.

Because across Nigeria, in all the 36 states plus FCT, whether it is in farming, there are hard-working men and women, they are out in the farm, who if you support them with either seedling or fertilizer or input, they do better.

 They produce more, with which they can take care of their families, and even generate to lower inflation because less people go to market, it is the same thing in fisheries, hard-working men and women. It is the same thing in the livestock sector. It is the same thing in small processing. Trade amongst ourselves. So Nigeria is a lucky country, in the sense that the domestic economy is an engine of growth by itself and even when the international policy is challenged, we can do much better to promote growth, and in what we are doing, significant growth will be generated by domestic activity.

 The security of the oil facility is a function of the wider security, and more money has been put into security and a lot of attention is being brought to bare. If somebody breaks a pipeline, he is destroying livelihoods. Fishing grounds will be destroyed. Even what can be planted in contaminated in that area. So these are even survival issues.

Two days ago, we saw the governors forum reviving a committee on crude oil theft and prevention. Just to also lend support so that those issues that are threatening us, not just from a revenue and environmentally are contained.

What is the government’s plan to enhance revenue from the maritime sector?

Well, first, the institutional realignment of recognising and creating a ministry of Blue and Maritime Economy goes to support the point you made that we appreciate that this is a sector that deserves attention by itself.

 The second element is, and that’s why one of the reasons why we are here, look, we should task people. We should ask questions of public officials so that if you don’t think you can do it, step aside and allow somebody who can do it. That’s how companies are run. If you are given a sector to run and you accept that it can contribute X to our national life, and without any decent reason, you can’t, then the searchlight should be beamed on you to make a choice. 

President Bola Tinubu, in signing the budget, said as much, if you cannot help us, then you may consider leaving and you have all responsibilities to put us to task. 

A budget, just like the mission of a private company, demands hard work. It’s not a presumed achievement. It depends on the industry and hard work of those who are bestowed with delivering it. And we should put everyone to task.