Femi Adesina to Atiku: Your knowledge of economy, petroleum sector is shallow

In a point-by-point response to last weekend’s analysis of the 2019 budget by the presidential standard bearer of the People’s Democratic Party, PDP, Alhaji Atiku Abubakar,  Femi Adesina, Special Adviser to the President on Media and Publicity, has  knocked the bottom off the opposition’s X-ray, saying Atiku’s analysis brimmed with rhetoric but was abysmally low on proffering “real solutions”.

The presidential spokesman made the submission in an article he published on his Facebook Page.

Below is the article; presented verbatim:

The presidential candidate of the Peoples’ Democratic Party (PDP), Alhaji Atiku Abubakar, last weekend, issued a statement in which he described President Buhari’s 2019 budget proposal as fundamentally flawed and failing to address current realities. He went on to identify the said “current realities”, which in any case were issues already highlighted in President Buhari’s budget speech and further amplified in the detailed presentation by the Minister of Budget and National Planning, Senator Udoma Udo Udoma. Regrettably, however, Atiku Abubakar offers no substantive and workable solution to the identified “realities”.

Atiku describes the underlying assumptions of the budget as generous, wild and untenable but does not propose alternative assumptions that would have been more appropriate. He argues that the economy is yet to recover from the 2016/2017 recession. Unfortunately, he cannot create his own definition of an economic recession, which is a technical term with a universally applicable meaning. When an economy experiences two consecutive quarters of negative GDP growth, it is said to be in recession and whenever it returns to positive GDP growth of whatever rate, it is said to have exited recession. It is doubtful if he understands the simple meaning of recession.

Atiku attributes the sustained accretion to foreign reserves to “increases in international prices of Brent Crude and foreign borrowing”. But he conveniently forgets that under the immediate past federal administration, oil prices were at an all-time high with substantial growth in foreign borrowings, and yet foreign reserves nose-dived from a peak of $62 billion to as low as $24 billion. His repeated reference to the price of Brent Crude throughout his statement may be indicative of his lack of knowledge that Nigeria’s Bonny Light Crude trades at a premium of at least $2 per barrel over the price of Brent; just as his reference to Nigeria’s OPEC quota may also suggest that he does not know that Condensates do not count in measuring compliance with the quota.

The PDP Presidential candidate faults the provision of N305 billion for NNPC’s cost under-recovery on Premium Motor Spirit (PMS) but does not say exactly what he would do about PMS pricing. If however we are to go by an earlier statement from his campaign organisation, which promised to reduce the price of petrol to N87, then we can expect a much higher subsidy provision from an Atiku government; because he is not going to perform magic to get the refineries working at peak capacity immediately.

He describes the 2019 budget as being very small, but does not offer any implementable options for improving domestic resource mobilization, which is the only sustainable means to achieving larger budgets. It does seem that he does not understand or is just feigning ignorance about the critical role of revenue in budget preparation.

A careful look at Atiku’s statement would show that there is nothing original about his identified “realities.” These are areas President Buhari had already identified in his speech. For instance, the President recognised that the revenue performance of the Federal Government up till September 2018 has been less than spectacular. Leaving aside for a moment the fact that there has been a remarkable increase in Federal Account receipts in the last three months, a look at the budget speech will show that the President specified a number of actions to tackle revenue weakness including strengthening on-going efforts at tax collection, liquidation of recovered assets, immediate recovery of past due oil royalties charges and deployment of the National Trade Window to improve customs collections.

His most laughable criticism perhaps was his claim that “there is little evidence to show that increased investment in agriculture has yielded positive results”. Even the worst adversary of the Buhari administration would acknowledge that significant progress has been made in the agriculture sector.

In his often desperate attempt to rubbish the 2019 budget, Atiku conflates foreign direct investment with capital inflows. This is wrong as capital inflows covers foreign direct investment, foreign portfolio investments, international borrowing and short-term deposits in money market instruments. He complains about movements in foreign portfolio investment which are often volatile and reflect monetary policy normalisation in the United States, meanwhile he is silent on the positive trade surplus mentioned in the budget speech which truly reflects living within our means as a nation.

Atiku also calculates the budget deficit as a percentage of current revenue rather than as a ratio of gross domestic product which is the preferred standard for inter-temporal measures of the deficit. Using this more appropriate measure the national fiscal deficit is 1.3% of GDP which is well below the 3% specified in the Fiscal Responsibility Act and well within the best global norms. So much for those who claim they have the magic wand to grow the economy.

A most glaring weakness in the statement by Atiku is that he does not take a stance on issues of public interest in the budget, which is utterly regrettable from someone who aspires to lead Nigeria. As President Buhari explained, the subsidy/under-recovery has been retained to reduce the burden on ordinary Nigerians at a time of weak purchasing power in a manner that avoids the abuses of the past. The truth is that contrary to the belief of people like Atiku that low fuel prices only benefit the rich, a large number of ordinary Nigerians rely on PMS to operate ‘keke’, ‘okada’, taxi, and ‘danfo’.  A lot of the generators used by small businesses also use PMS.  Indeed, it is amazing that a man who has promised N87 per litre of PMS can criticise a process of under-recovery/subsidy that is not being abused as it was in the past.

To further show Atiku’s lack of knowledge about basic issues in the petroleum market, he contradicts himself in his quest to make a non-existent point. He complains about the benchmark price of $60 per barrel used for crude oil exports in the budget and tries hard to show understanding of the dynamics of the global oil market by referring to US shale oil production and pressures on the Saudi regime. Yet Atiku expects that OPEC quotas will come into force, in which case the price of crude oil may rise in international markets. What is obvious is the fact that low oil prices impact negatively on shale oil production. For instance, recent reports from a Permian producer show that with West Texas Intermediate at near $45 per barrel, they have already cut back on rig count and use of completion crews.  There is more over the demand side which remains extremely strong in the United States, while large economies like China and India will continue to grow at over 6% and 7% respectively in 2019, which will also impact on crude oil prices.

Finally, Atiku moans about the capital budget without acknowledging the historically high capital expenditure over the past two budget cycles continuing into the current 2018 budget cycle. Apart from the fact that the Federal Government has kept to its promise to keep capital expenditure at 30% of the budget, the PDP Presidential candidate is quiet about his plans to raise capital expenditure and reduce recurrent spending. The reality is that it can only be done by retrenching public sector workers and by not increasing the minimum wage to which this government is fully committed.

It is therefore obvious that Atiku’s statement on the budget was a poor attempt at playing to the gallery. Without a doubt, the country faces significant fiscal challenges. The administration of President Buhari understands these challenges, as well as workable solutions thereto. The implementation of some of the solutions however needs to be paced and well-timed to avoid dislocating the growth trajectory of the economy. Atiku’s criticism of the 2019 budget proposal can best be described as high on populist rhetoric but low on any real solutions to the identified challenges.