On asset sales: The elephant in the room.

The flavour of the week, in terms of paths out of the recession, is asset sales. The story goes; “We are in recession. To get out of recession we need to spend money. To get money to spend we need to sell some assets.” Air tight logic if you ask some. There is, however, the elephant in the room. That elephant is how the government spends money.

Since the debt forgiveness episode in 2005 the federal government has increased its domestic debt from N1.5tn to N12.6tn as at January this year. It has increased its external debt from $3.5bn to $11.3bn. It has collected an estimated N84tn in oil and tax revenue between 2005 and 2015.

 

What has the FG done with this money? To say it has blown it is putting it lightly. The bulk of funds have gone to paying salaries, fuel subsidies, and in more recent years servicing already piled up debt. So much so that in the last two years they have effectively borrowed to pay salaries. The government apparatchiks will say that this regime has shown a dedication to focussing on capital expenditure and cutting waste. Well the reality is that recurrent expenditure is higher in absolute terms this year, than it was last year or the year before. The fuel subsidy is still technically there although with a different name. They have also introduced a new foreign exchange subsidy which is perhaps the worst of all.  Yes, ghost workers this and TSA that, but all that is akin to shaving the skin of the chicken when a leg needs to yanked off. The chicken being the civil service.

 

The question then is, if the federal government raises revenue from assets sales, will it blow it all again? And if it does, what happens next? Any asset sale discussion has to go hand in hand with a discussion on rebalancing government spending. Else it will just be another kick the can down the road exercise.

There are many other questions with regards to reforms, and transparency but we can save that for another day.

 

Note: In theory I am almost always for privatization, or sale of government assets, or whatever else it is called these days.

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