EDITORIAL: The $2.1bn Question!

As a result of daily oil theft under the watch of President Goodluck Jonathan PDP-led administration and crash in the price of crude oil internationally; about 23 states were unable to pay workers’ salaries. In fact, by June 2015, states owed 6 months salaries.

The new government of President Muhammadu Buhari had to bailout the states with $2.1billion from Liquefied Natural Gas proceeds and intervention fund between N250billion and N300billionfrom Central Bank as soft loans to enable states navigate out of the financial quagmire. This bailout was a repayable loan scheduled by Debt Management Office with the CBN.

However, the Governor of the Central Bank of Nigeria should pause and reflect on the planned deduction of the $2.1billion loan from allocations due to the states. The deductions fly against contemporary economic thinking and the responses worldwide to the novel COVID-19 pandemic.

Across the globe, governments have adopted expansionist monetary and fiscal strategies to contain the retractions in economic activities caused by the shutdowns to ameliorate the pandemic. Nigeria should not be an exception.
What is on offer appears like an anti-(fiscal) stimulus. This should be avoided.

For as the celebrated economist, John Maynard Keynes, pointed out in his path breaking work, “The Economic Consequences Of The Peace”, shrinking the money supply at a time of economic downturn will lower overall output leading to mass unemployment. For a fragile democracy such as ours, the consequences will be unpalatable.

With the ensuing violence and criminality across the land which have badly affected economic stimulants, recouping the said loan at this period will kill the states as it will depress demand, lower output and certainly lead to layoff in the public sector.

Even without it, Kaduna State has already laid off 4,000 public sector workers. Retrenchment will further lower already diminished purchasing power, leading to contraction in the private sector and the laying off of private sector workers which may drag us to a terrible vicious recession cycle fraught with grave uncertainty and danger.

A new national democratic agreement must be worked out between the Federal and state governments, including labour and the private sector for a sustainable development programme at a time like this and projecting to a period when this deduction could start.