Dear Advocate of Reasoning,
In today’s edition of the Voice of Reasoning newsletter, we delve into the complexities of government interventions in the economy, particularly focusing on the Nigerian experience.
President Tinubu has just launched a conditional cash transfer program, aiming to spend N1 trillion by giving N25,000 per month to 15 million households. This is supposed to lift the poor out of poverty and improve their well-being. However, past experiences taught us that a program like this is nothing but a costly mistake that will waste public resources, fail to reach the intended beneficiaries, and create more problems than it solves.
Conditional cash transfers (CCTs) are a form of social protection that provide cash assistance to poor and vulnerable households, conditional on their participation in certain activities, such as education, health, and nutrition. CCTs have been implemented in many developing countries, such as Brazil, Mexico, India, and Indonesia, with varying degrees of success.
However, Nigeria’s CCT program faces several challenges that undermine its effectiveness and sustainability. The first problem is where the government would source the money.
Nigeria’s debt situation is alarming. In the fourth quarter of 2022, Nigeria’s total public debt, encompassing both external and domestic debt, reached N46.25 trillion (equivalent to US$103.11 billion), marking an increase from N44.06 trillion (US$101.91 billion) recorded in the third quarter of 2022. According to the Debt Management Office of Nigeria, as of March 2023, Nigeria’s external debt stood at US$41.69 billion. This underscores Nigeria’s ongoing reliance on external borrowing, despite the associated risks such as currency depreciation, interest rate fluctuations, and concerns of potential debt distress.
Loan became a problem in Nigeria when the country’s debt-to-GDP ratio, which measures the sustainability of debt, was estimated at 35% in 2022. This is above the 25% threshold recommended by the IMF for developing countries. Also, Nigeria’s debt service-to-revenue ratio, which measures the affordability of debt, was projected at 83% in 2022. This is way above the 40% threshold suggested by the World Bank for low-income countries. This means that Nigeria is spending more than it earns on servicing its debt, leaving little room for other developmental needs.
This raises the question of how the government can afford to spend N1 trillion on a CCT program that is ineffective and unsustainable, while neglecting its debt obligations and other pressing needs. Similar social projects implemented in the past are enough of a lesson for the government to ditch any idea of handouts for the poor.
One of our fellows documented some of these programs in a previous report. Why not read further. Here: How Government Intervention to Reduce Unemployment Traps People in Poverty
This is Voice of Reasoning, and this is from The Liberalist.
Stay free and keep reasoning.