THIS ELUSIVE PRIZE OF FISCAL CONSOLIDATION

 The new advisers have their work cut out, writes Charles Iyore

This is the ball to watch (Eyes on the ball!) Governments unable to reach fiscal consolidation, suffer the odium of external creditors in the pricing of their debt instruments and often have to cope with domestic disequilibrium, which can occasionally, become violent (general strikes, work to rule actions, high unemployment levels, poor social services, etc.) Inability to reach fiscal consolidation means that governments as representing the state, and the state in action, are not able to cover running costs, arising from their inefficient collection of revenues and poor tax arrangements, as required in the circular economy that is governance. That state of resources inadequacy, can be imagined as being partly naked or poorly clothed, it can also be imagined as having a head too big for the body to carry. It may well mean having giant upper limbs and pygmy lower limbs. In all circumstances, government appendages become inappropriate in sizing and movement (taxis) becomes awkward or difficult.

Hence it is not the size of a nation that matters in the sense of, being big or small, but the ability to nimbly exercise all the sensibilities of life. So whether it’s about President Reagan getting the US out of the nanny state, Britain’s Prime Minister Margaret Thatcher optimizing asset value, with the sale of council houses and the privatization of utilities, or Japan’s Shinzo Abe turning away from the overuse of monetary policies and pushing for growth. All have been able to rationalize their national appendages in order to become nimble and have as a result, caught the admiration of the world, hence Reaganomics, Thatcherism and Abenomics. (They all left a global legacy).

Countries chasing their tails. Why are well endowed countries still caught in middle income traps, becoming unstable at home and not competitive abroad? That may well be, in the notion of Professor Allan Walters (Chief Economic Adviser to Prime Minister Margaret Thatcher), down to the treasury’s management of the intersection between money and capital markets. Professor Allan Walters accused Whitehall, of not understanding markets and the importance of money in governance. While it is the duty of the state to do the heavy lifting as she creates institutions to serve the people, in the pursuit of their happiness, she must also know when and how to let go, of these institutions. She must put them, into orbit, into self-sustaining orbits, without a fall in the quality of service delivery. This is the true test of modern statecraft. That intersection activity, often described as privatization, when assets leave the purview of the public sector or self-funding (commercialization) when they remain in the public sector purview, is one of the ways of significantly reducing the financial burdens of governance, without shirking her responsibilities of public service. The bureaucracy, therefore, in their advisory, need to properly understand the concepts of money and markets, in their various forms, to properly advise the sovereign.

That shift in purpose and location of national assets when not properly done, leads to accretion of resources in the wrong locations, where they are idle or are sub optimally utilized, but more importantly could invite abuse. (A major driver of “so called” corruption). The complex play, is such that while the government can create money as a sovereign in whatever format of creation, forming the capital now privately held, requires close working with the capital markets. The long-term capital so formed is the key driver of national economic growth. This is why the capital markets are described as the engines of economic growth. Not much sustained growth can happen if the nation’s capital markets remain in development infancy. Against that background it is important that the cohort of regulators see the economy and its sovereign-set direction from the same prism, rather than working in territorial silos. This was the reasoning for setting up the FSS2020, as envisioned by the Central Bank (Soludo and Sanusi), which never progressed to roundtable meetings of heads of regulatory institutions. Despite the drift from adherence to the universal guiding governance equation, a drift which has been the case since 1988, it is possible to turn things around quickly, and raise a true, self-equilibrating economy from the ashes. The pre-requisite is to properly press the reset button.

Lessons from the United Kingdom: a very developed G7 economy, the United Kingdom, is still suffering from two weeks of policy misapplication by Prime Minister Liz Truss and her treasury. The UK economy is expected to go through, as a consequence, eight quarters of recession, although luckily the economy has been flat-lining for the last two quarters.

Decisions based on reliable economic data: Economic data on the Nigerian economy, since we ditched command and control for deregulated free markets in 1988 have remained unreliable. With various brilliant destination statements, all lacking in the mechanics for arriving at the set destinations. This disjoint between theory and practice, is what must have led Mr. Ashikiwe Adione-Egom, (former economics editor at the Guardian Newspapers), to propound his theories of motor pack economics.

Disaggregating policy items. Resetting will therefore require a disaggregation of most policy items to allow for a bottom-up, rebuilding approach of the economy and the redefinition of the policy frameworks, needed to set the critical boundary values. The same poor management by the treasuries at the intersection between money and capital markets is at play at the Local government, and sub-sovereign States.

Assets in the wrong locations and often created without guidelines and adherence to standards. This disorderly state, makes the issuance of municipal bonds and other forms of debt instruments by sub-nationals unattractive to investors. The wide use of ISPOs (Irrevocable Standing Payment Orders) and large sinking funds, in sub-national debt instruments’ issue, is an admission of the fact that the gilts’ edges are already tarnished, even at the point of issue. The support for nearly all of the many subnational debt obligations are solely the distributions from the national treasury. This accounts for the fragility of the state’s experience when global oil prices declined and states had to be bailed-out by the federal government.

How we create our money to meet trade and exchange demands. So what value does the treasury get from one naira (100 kobo) issued on behalf of the government by the Central Bank? Is there an abuse of the process? Therein lies the rub, as 30 kobo will be a generous assumption of value derived. These values are largely from difficult economic activities for base survival, often at the edges, as more that 70% of highly qualified tenured workers, do not earn a living wage. Growth in those circumstances is always going to be elusive. The new advisers have their work cut out. It is refreshing to know that in all the maelstrom of governance activities that have not delivered public good, there has been a state that collected her taxes and earned enough investor confidence to raise N50 billion from the markets. That started when Mr. Wale Edun was Lagos State Commissioner of Finance and has continued in that trend, but unfortunately, has not significantly altered the attitude in treasuries elsewhere. The expectation therefore, is for those deft moves in Lagos, to be replicated at the centre, in Abuja. That will require a recalibration of treasury activities, in the various federating units. Can those usages that became state rules and now established as state acts, enter the Federal statute books? Following the guide on court judge’s perquisites, initiated by Lagos State and now a federal model, plenty can be learnt from how that was done. The appeal by President Tinubu, to the state governors, at the inauguration of the National Economic Council, is a welcome nudge to the state governors, perhaps to form about 10 industrial and economic zones. These zones, specializing in some activities should be able to benefit in a European Union style trident countries’ funding format, and be able, to qualify for Federal funding, to enable them retain the high-skilled work-force, in numbers that Lagos and Abuja have. We must not fail to plan this time, or we would be condemned to repeat it.

 Iyore is Principal Partner, DNA Capital Darenth, Kent, England (dioncta@aol.com)