Experts Charge Federal Govt. on Plan to Reduce Cost of Governance
Zainab Ahmed, Finance Minister

Experts Charge Federal Govt. on Plan to Reduce Cost of Governance

Experts at Afrinvest Limited, a leading independent investment firm, have charged federal government of Nigeria to implement plans to reduce cost of governance in the country.

Recall that Nigeria’s Minister of Finance, Budget and National Planning, Mrs. Zainab Ahmed, announced during a policy dialogue initiative organized by the Independent Corrupt Practices and other Related Offences Commission (ICPC) that the federal government will soon begin to merge or shut Ministries, Department and Agencies (MDAs) with similar roles to eliminate induced wasteful expenses in the public sector.

In a macroeconomic note, Afrinvest expressed view that this decision is long overdue and should be extended to other arms of the government in order to make the public sector efficient.

According to the firm,  between 2018 and 2020, personnel and overhead cost of federal MDAs excluding the National Assembly, Judiciary, and Government Owned Enterprises (GOEs) rose by 30.3% from ₦2.4 trillion in 2018 to ₦3.1 trillion in 2020, due largely to the increase in the national minimum wage from ₦18,000 to ₦30,000 effective September 2019.

It explained that in proportional terms, the MDAs recurrent bill in 2020 which printed at ₦3.1 trillion equates to 52.6% of the total federally retained revenue of ₦5.8 trillion for the year.

Consequently, the federal government was left with a balance of ₦2.8 trillion for allocation to other areas, including capital projects.

“This trend was consistent in each of the three years observed, with personnel cost accounting on average for 90.0% of the MDA’s recurrent expenditure”, it added.

Interestingly, Oil revenue accounts for more than fifty percent of the total federally retained revenue in each of this period, suggesting that most MDAs take more from the federal government purse than they generate.

“To make up for the imbalance between inflows and outflows over this period, we noticed that the federal government’s total debt stock (domestic plus external) increased by 42.0% from ₦18.4 trillion in January 2018 to ₦26.9 trillion in December 2020”, the firm noted.

It added that federally retained revenue only increased by 38.1% to ₦5.8 trillion over this period.

“Going forward, we charge the current administration to make real its intention of cutting wasteful spending in public sectors, in order for the lean resources to be channeled to productive use”, Afrinvest said in the report.

In its response to the issue, Cowry Asset Management Limited said in a note that Federal Government’s move to cut cost, especially recurrent expenditure, appear to be a good one given its budget deficit of N5.92 trillion in 202.

According to budget document, Nigerian planned to spend N13.9 trillion with a view to earning N7.98 trillion in 2021, aims to close the deficit with borrowing plan.

Experts Charge Federal Govt. on Plan to Reduce Cost of Governance

The firm said FG Plan will reduce pressure on financing as more funds would be freed up for capital projects, such as power and road infrastructure that are critical for economic growth

The report cited that one of the Federal Government capital projects, the USD1.3 billion Zungeru hydroelectric power in Kaduna State, was reported to have reached 88% completion level.

“The new power project is expected to inject 700 Megawatt (MW) of electricity into the national grid when it becomes functional in December 2021”.

“According to the Minister of Power, Mr. Sale Mamman, the power project which is expected to generate 2,630 GWH annually, comprises a composite dam roller compacted concrete, asphaltic core rockfill dam, diversion work, spillway and plunge pool, power intake and penstocks, as well as tall race channels.

“In addition, the Zungeru works has 330/132 transmission lines evacuating power to the existing grid connecting Jebba and Shiroro power plants.

“The project which is being handled by Messrs CNECC Sinohybrid Consortium is being funded by a counterpart financing mechanism, with the Federal Government fully paid up its share of USD309.25 million – having so far collected USD984.30 million from the Exim Bank of China to revamp the country’s power infrastructure”, analysts detailed.

Elsewhere, the CEO, Pension Fund Operators Association of Nigeria (PenOp) stated that the continued decline in Pension Funds’ Assets since the beginning of the year was mainly due to the falling prices of Fixed Income Securities (FISs) amid rising yields.

He noted that Pension Fund Administrators (PFAs) are currently eyeing other alternative investment options aside from government bonds and treasury bills to boost returns on investment.

However, he mentioned that currently the fund administrators cannot invest in foreign bills as there are regulations to be approved by government.

According to the National Pension Commission’s (PENCOM) report, the total value of Pension Fund Assets fell month-on-month by 0.41% to N12.25 trillion in February 2021, from N12.30 trillion printed in January 2021.

Further break down of the report showed that most of the pension fund assets were invested in FGN Securities – both bonds and treasury bills; as their share of the total assets rose to 66.37% (or N8.13 trillion) in the month under review, from a 65.92% (or N8.11 trillion) recorded in January 2021.

However, total funds invested in bank placements and commercial papers moderated month on month by 1.81% to N1.62 trillion in February 2021 (lowering its share of the total assets to 13.22%), from N1.65 trillion in January 2021 (or 13.40% of total assets) while invested fund in Corporate Debt Securities as a percentage of total pension fund assets stood at 7.10% (or N0.87 trillion) from 6.80% (N0.84 trillion).

“While we commend the Federal Government on its move to cut cost amid reducing frivolous expenditures in its budget and merging MDAs with similar functions, it is also imperative for FG to lead by example by reducing its salaries and allowances including that of the Legislatures.

“With this, we note that more funds would be freed up for capital projects, such as power and road infrastructure that are critical for economic growth”, Cowry Assets stated.

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Experts Charge Federal Govt. on Plan to Reduce Cost of Governance

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