Atlantic Post

Ex-CBN Director Urges Federal Government to Slash Governance Costs Amidst Escalating Debt Servicing and Economic Challenges

In a recent interview with the News Agency of Nigeria (NAN), Dr. Titus Okunrounmu, a former Director of the Central Bank of Nigeria (CBN), issued a compelling call to the Federal Government to implement strategic reductions in the cost of governance for the year 2025.

Dr. Okunrounmu emphasised that the burgeoning expenses associated with maintaining governmental operations have significantly inflated recurrent expenditures, thereby exacerbating the nation’s debt servicing obligations. He highlighted a concerning escalation in debt servicing costs, which have surged from ₦9.8 trillion in 2023 to ₦12.1 trillion in 2024.

The Escalating Cost of Governance

Nigeria’s fiscal landscape has been increasingly dominated by rising governance costs, encompassing salaries, allowances, and operational expenses of government officials and public servants. This upward trajectory in recurrent expenditure has been a persistent issue, drawing criticism from economists and policy analysts who argue that it diverts essential resources away from critical capital projects and social services.

Dr. Okunrounmu’s concerns are underscored by recent data from the Central Bank of Nigeria, which reported that the nation’s debt servicing expenses reached ₦6.04 trillion in the first half of 2024, marking a sharp increase of 68.8% from the ₦3.58 trillion recorded during the same period in 2023.

Implications of Rising Debt Servicing Costs

The surge in debt servicing costs has profound implications for Nigeria’s economy. A significant portion of the national budget is now allocated to servicing debt, leaving limited funds for infrastructure development, healthcare, education, and other essential services. This scenario hampers economic growth and development, perpetuating a cycle of borrowing and debt repayment that is unsustainable in the long term.

Furthermore, the high debt service-to-revenue ratio poses a threat to fiscal stability. According to BusinessDay, Nigeria’s debt service-to-revenue stood at 74.3% in the first quarter of 2024, the lowest in five years, yet still alarmingly high.

Recommendations for Fiscal Prudence

To address these challenges, Dr. Okunrounmu advocates for a strategic reduction in the cost of governance. This could involve streamlining government agencies, reducing the number of political appointments, and cutting down on unnecessary expenditures. By doing so, the government can reallocate funds towards capital projects that stimulate economic growth and generate revenue, thereby creating a more sustainable fiscal environment.

Additionally, Dr. Okunrounmu suggests that the Federal Government should adopt a more prudent borrowing strategy, focusing solely on loans for capital expenditure. This approach ensures that borrowed funds are invested in projects that can generate returns, facilitating repayment and reducing the debt burden.

The Port Harcourt Refinery: A Case Study in Capital Investment

In line with his recommendations, Dr. Okunrounmu commended the recent resuscitation of the Port Harcourt Refinery. The refinery, which had been non-operational for several years, resumed production in late 2024 after extensive rehabilitation efforts by the Nigeria National Petroleum Corporation Limited (NNPCL).

The refinery’s revival is expected to significantly reduce Nigeria’s dependence on imported refined petroleum products. By processing crude oil domestically, the country can save on import costs, stabilise fuel prices, and potentially become an exporter of refined products to neighbouring West African countries. This development not only boosts the economy but also enhances energy security.

However, the success of this venture hinges on regular and effective maintenance of the refinery to ensure optimal capacity production and service delivery. Dr. Okunrounmu advises the NNPCL to prioritise maintenance to avoid the pitfalls that led to the refinery’s previous shutdowns.

Dr. Okunrounmu’s insights shed light on the critical need for fiscal prudence in Nigeria’s governance. By reducing the cost of governance and adopting a strategic approach to borrowing, the Federal Government can alleviate the strain of debt servicing on the national budget. Investments in capital projects like the Port Harcourt Refinery demonstrate the potential benefits of such an approach, offering a pathway to economic stability and growth.

As Nigeria navigates the complexities of its fiscal challenges, the implementation of these recommendations could mark a significant step towards sustainable economic development.

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Structural Issues Driving High Governance Costs
Dr. Titus Okunrounmu’s plea for reduced governance costs brings a critical spotlight onto Nigeria’s entrenched structural inefficiencies. The nation’s sprawling bureaucratic framework, characterised by a multiplicity of overlapping government agencies, commissions, and parastatals, has created a fiscal black hole. Analysts point to the duplication of roles and the lack of accountability as major contributors to the financial haemorrhage.

The Oronsaye Report of 2012, which proposed the streamlining of government agencies to save billions, remains largely unimplemented, a stark reminder of the political inertia surrounding governance reforms. This failure to act has perpetuated a system where a significant portion of the national budget is consumed by overhead costs, leaving little room for developmental projects.

Political Will vs. Public Pressure
Reducing governance costs is not merely an economic decision but also a political one. Successive administrations have avoided meaningful reforms due to the potential backlash from powerful vested interests, including political appointees and civil servants. Dr. Okunrounmu’s recommendations, while sound in principle, face the challenge of entrenched resistance from those who benefit from the status quo.

Public pressure, however, is mounting. Civil society organisations and advocacy groups have intensified calls for transparency and accountability. The looming economic crisis, marked by spiralling debt and declining revenues, has further galvanised citizens to demand action. If the Federal Government fails to heed these calls, it risks eroding public trust and exacerbating socio-economic tensions.

Debt Servicing: A Looming Crisis
The escalation of Nigeria’s debt servicing obligations from ₦9.8 trillion in 2023 to ₦12.1 trillion in 2024 underscores the urgency of fiscal reforms. This trend is unsustainable, especially in the face of dwindling oil revenues and limited diversification of the economy. Dr. Okunrounmu’s advice to borrow solely for capital projects highlights a prudent strategy that could mitigate this crisis.

However, critics argue that Nigeria’s borrowing practices have often lacked transparency and accountability. The allocation of loans to non-productive sectors has fuelled a cycle of debt dependence, with little to show in terms of tangible outcomes. The Port Harcourt Refinery, lauded by Dr. Okunrounmu, stands as a rare example of a capital project with measurable economic benefits.

Port Harcourt Refinery: A Beacon of Hope?
The rehabilitation of the Port Harcourt Refinery is indeed a significant milestone, but it also raises questions about Nigeria’s broader energy policy. While the refinery’s resuscitation promises to reduce the reliance on imported refined products, it highlights the glaring inefficiencies that have plagued the oil and gas sector for decades.

Regular maintenance, as advocated by Dr. Okunrounmu, is critical to sustaining production levels. Nigeria’s history of neglecting its refineries, often attributed to corruption and mismanagement, serves as a cautionary tale. The Nigeria National Petroleum Corporation Limited (NNPCL) must adopt international best practices to ensure that the refinery operates at optimal capacity and delivers on its promises.

The Path Forward: Balancing Reform and Growth
Dr. Okunrounmu’s insights present a roadmap for addressing Nigeria’s fiscal and economic challenges. Reducing the cost of governance, embracing fiscal prudence, and investing in revenue-generating projects are essential steps towards achieving economic stability. However, these measures require a level of political will and public accountability that has been largely absent in Nigeria’s governance.

The success of the Port Harcourt Refinery offers a glimmer of hope, and demonstrates that targeted investments can yield significant dividends. Yet, the broader challenges of debt servicing, governance inefficiency, and policy inertia remain formidable obstacles.