As President Muhammadu Buhari begins to wind down his first term in office and prepares for his second tenure, pan-African rating agency, Augusto & Co, has said the president will be faced with "hard choices with no easy way out."
The firm stated this in a report titled: 'Buhari Version II (2019--2023): Economic Perspectives,' made available to THISDAY yesterday.
The president's second term, which would commence on May 29, 2019, is expected to terminate same day in 2023.
However, the report noted that Nigeria is currently in "a dire fiscal strait and the numbers are quite grim," adding that despite the positive spin about Nigeria's benign debt to Gross Domestic Product (GDP) currently around 20 per cent, interest payments as a percentage of revenue are over 60 per cent.
"Other fiscal indicators also put Nigeria at the bottom of the rung even among sub-Sahara African peers. Nigeria's five-year average of capital expenditure as a percentage of nominal GDP is a meagre 2.1 per cent which pales in comparison to Angola (seven per cent) and Kenya (7.6 per cent).
"However, with a projected budget deficit of N3.8 trillion in 2019, capital expenditure as a percentage of nominal GDP could decline further to 1.1 per cent this year.
"The implication of this burgeoning deficit is that in 2019, Nigeria will have to borrow to meet its obligatory spendings - interest payments, transfers and payroll - projected at about N5.4 trillion with a revenue of about N4 trillion.
"This implies a cash crunch for capital expenditure. Thus, with this fiscal backdrop, macro reforms that will improve the revenue position of the government and pare back the deficit by cutting spending are non-negotiable," the report predicted.
According to Agusto & Co, Buhari in his second term would have to work to raise revenue while also restructuring government spending.
This, they noted would require politically unpopular "but inevitable choices."
For instance, the report pointed out that Nigeria's current fuel subsidy regime indicates the country may have readopted opaque practises of the past that not only create a huge fiscal hole but a morass as well.
"With subsidy payments probably in the range of N1.2 - N1.3 trillion annually, the country is obviously haemorrhaging especially amidst the steep opportunity costs.
"Buhari will not only have to stop this fiscal haemorrhage but also muster the political will to deregulate the downstream petroleum industry once and for all times," it added.
It recalled that Buhari's victory of 2015 was largely greeted with euphoria by a business community expectant of badly needed macro reforms. However, long-term watchers of the president were quite dismissive of his inclinations towards macro-reforms, it stated.
It noted that, "middle of the ground analysts buoyed by some of the bold pro-market reforms in the Economic Recovery Growth Plan (ERGP), had hoped for some form of Damascene moment for the president that would get him to expend some of his political capital on tough and politically unpopular macro reforms.
"The 68 per cent rise in the pump price of petrol to N145 in May 2016 from N86.50 and the feeble response from the oft anti-reformist labour unions had given a bit of hope to these middle of the ground analysts that Buhari did intend to expend some of his political capital to pursue unpopular reforms.
"However, Buhari's rhetoric on exchange rate policies which may have driven the central bank into adopting a demand management stance on the currency, cleared doubts about the president's statist economic ideologies. "Without a doubt, the effects of the currency crisis did send Nigeria into its first recession in 25 years," the report added.
It noted that the calls for adjustment of exchange rates, electricity tariffs and petrol prices, to reflect market fundamentals, were largely ignored by the president.
This, it noted left the country with a burgeoning fiscal deficit.
"The second argument to demonstrate the statist stance of this administration would be the abortion of its own reform programmes.
"For instance, the planned concession of the major international airports in Lagos, Kano, Port Harcourt and Abuja by this administration and the cold trail of the process buttress this argument."
Continuing, the report stated: "The reform-lite approach of the Buhari administration in the first term implies that it has an extensive to-do list in the second and final term.
"Some of the big issues that will make or mar Buhari's economic records will be the management of subsidies and other cost unreflective tariffs being stifled by price controls.
"These reforms will require the removal of subsidies on the pump price of petrol, allow market forces to determine the domestic price of natural gas, allow electricity tariffs that enable operators earn margins on their costs and also ensure exchange rates reflect fundamentals.
"These reforms could help stimulate investments across board and unlock economic growth. The Buhari administration will also need to adopt a private sector growth approach.
"Overall, we believe that Nigeria cannot sidestep reforms without severe consequences that could last an entire generation. History beckons on Buhari to prove the naysayers wrong."