Friday, October 16, 2009

The N300bn stimulus package

The decision of the National Economic Council (NEC) authorizing the withdrawal of N300 billion (about $2 billion) from the Excess Crude Account to be distributed to the three-tiers of government–the Federal, states and local governments–to buoy the economy is a good one, only if the fund would be used for the stated purposes.

Excess Crude Account is the one into which Nigeria saves oil revenue above a benchmark level as a protection against any fall in world energy prices. NEC, an advisory body comprising the 36 state governors, the Governor of the Central Bank of Nigeria, and ministers of Finance, National Planning, Attorney General and Minister of Justice, took the decision last week at the behest of the CBN, which had at its presentation during the meeting painted a grim picture of liquidity problems in the commercial banks due to the ongoing reforms in the banking sector.

As a result of this, President Umaru Yar’Adua reportedly requested that the $2bn be made available to the three-tiers of government to mitigate the negative impact of the liquidity crisis occasioned by the recent economic meltdown and the current credit crunch in the banking sector.

In this direction, the Federation Accounts and Allocation Committee (FAAC) is expected to begin the distribution of the funds to the respective tiers of government, as well as work out the sharing formula. The amount is to be used to pay local contractors, many of whom are owing banks huge sums of money. It is believed that Non-performing loans (NPLs) recorded in some of the troubled banks were partly attributed to debts by contractors. Secondly, the injection of the fund is to be used to execute projects which can create jobs and stimulate the economy.

We heartily welcome NEC’s decision. Indeed, we support every well-thought-out measure that will strengthen our economy. There is no doubt that due to ongoing efforts to sanitize the banking sector and the turbulence which has hit the capital market, resulting in huge losses in the value of stocks, our economy has received a hammering. It, therefore, needs a stimulus package that will propel steady growth.
Beyond that, domestic debt to local contractors is believed to have risen to an all time high of N1.9 trillion. Again, this doesn’t encourage economic growth. Therefore, the N300bn is seen as quick and short term fiscal stimulus that could put the economy back on the path of recovery.

However, as well-intentioned as this stimulus package may appear, our worry is that the fund may end up as political patronage, thereby defeating the lofty objectives. Misapplication and outright misappropriation of fund intended for public good have often been the bane of our society. It has become the occupational disease of our politicians who are notorious for not being good managers of public funds.

The timing of the disbursement of this money is equally suspect. Coming close to election year raises additional worry that the money may be misused by key officials of government, especially at the state and local government levels.
We urge the Federal Government to take a cue from countries such as USA on how to administer fiscal stimulus on critical sectors of the economy.

There is no doubt that the injection of the N300bn will, if well managed, accelerate economic growth. But, growth will be hard to attain if the fund is mismanaged or misappropriated. We had expected government to channel this stimulus package into specific critical areas such as road rehabilitation, housing and energy supplies. All the same, we challenge the three tiers of government, especially the officials who will manage the utilization, to think through the projects they want to execute. Transparency should be the watch-word.

Nigerians have watched with utter helplessness the rate at which public funds are diverted into private pockets. This stimulus package should not be allowed to go the same way.