Nigeria’s public finance challenges: Let’s reduce wages by fifty percent? Professor Chinedum Nwajiuba

The idea to reduce wages and similar earnings in the public and private sectors across board in Nigeria by fifty percent, which I am suggesting, sounds crazy even to me. As a result of decline in earnings from crude petroleum export, Nigeria’s public finance is distressed. The clear manifestation of this is the inability to pay wages to those many governments pay monthly in Nigeria. However, I am wondering the implications of reducing all wages, allowances, emoluments,pensions and similar payments by fifty percent. My purpose here is academic. How would the economy respond to such reduction? I am interested in learning and urge better informed people to enlighten on that.
Before then however, there are some dilemma requiring direction on, assuming this idea was to be tried. In the first case how do you do that? By administrative fiat? By an act of parliament? How will the private sector be committed to such reduction? Can that be done by law or persuasion as part of patriotic, national emergency?
There is a possibility that some persons may not yet appreciate the enormity of the challenges confronting Nigeria. Some may even say the economy has always been in emergency. My take is that there is very significant worsening of the situation of the economy and the wellbeing of many, and still increasing number of Nigerians. For one, every day I am confronted by a rapidly increasing number of persons who approach me begging for money. It has always been there but the number is expanding rapidly. Nigeria has become a country of beggars, and I do not mean the familiar persons on the streets. Now it includes persons in employment in the public and private sectors.
One reason for this is that in many cases workers, especially in some states have not been paid, and in some cases we learn for several months. The same applies to pensioners. It also cuts across sectors, including even the universities. I am convinced that the difficulty in paying workers in several states is not by choice. Simply it is because money coming from Abuja has significantly reduced.
In Owerri, the capital of Imo State, where I work and reside, I perceive a collapse of the economy. I see the gradual halting of the circular flow of income. For a state that depends significantly on the federation account, such that before now, even traders in the markets in Owerri knew when civil servants were paid by the increased demand for consumer goods, the inability of government to pay salaries and pensions is evident. For those not familiarwith the implications of this for the flow of income, we may illustrate it as follows:
Being the most important source of funds inflow into the Imo economy, receipts from the federation account is what drives demand in the state. When all those who should be paid, including civil servants, teachers, university and other tertiary institutions, pensioners, and others, are paid, they are able to constitute effective demand for goods, including basic needs of foods, clothing, shelter, pay for house rents, meet medical, and other needs, pay for transport, buy fuel, give offerings in Churches, etc. The list is long. For instance, a food seller who gets paid will be able to also pay for what he or she needs and the next person buys or pays for what he or she needs. Transporters are paid, the churches get some receipts and so on, as the wheels of the economy runs.
In addition to the federation account receipt (which is the most important source of funds inflow into the Imo State economy, as is also the case with most other states in Nigeria), internally generated revenues including taxes also count, but comparatively low (perhaps only Lagos and Rivers states can meet recurrent expenditures by the public sector from non-federation account sources). In any case when workers are not paid, and they cannot buy or pay for goods and services, internally generated revenuealso fall as people may not pay income taxes, and the declined demand for goods and services means those they patronize suffer reduced earnings, and therefore less taxes will accrue to government.
The next source of funds inflow into the state is remittances from outside the state (in and outside Nigeria) as well as investors and visitors from outside the state. In some cases where people reside in other states within Nigeria, and those other states suffer similar shrinking or collapsed earnings from pubic sources, the level of remittances and investments also decline. These represent the case with current Nigerian economy for most states.
My observation is that there are currently reduced transactions and exchanges. My thinking is that it has become urgent to once again expand and accelerate the flow of income. It has become urgent to have money in people’s hands and pockets. As stated above everyday people are begging for money. Some of us have become unable to help. We cannot even get from other persons to be able to help those asking us for money. Clearly our society has become a society of beggars.
That is why I am asking if it would help if in the state of severe economic emergency we are in, all earners of wages, incomes, honoraria, pensions, allowances, name it,from the President, the CEOs, down to the least paid, accept that we reduce across board for everyone in the public and private sectors by fifty percent. But I wonder, what will be the implication of this.
I imagine the first will be that some (if not all states) will be able to pay something to those they should pay, as against the present situation of zero payments. That will help the flow of incomes. Some person will say no to this, but it is only a debate I want to learn from and I believe there are other persons who will want to engage in this discourse. Some will say start by recovering stolen public funds. That is also important, but I believe we need to address the declined available national earnings and manage emoluments sustainably. We may even decide that all such recovered funds should go exclusively to capital investments that have potential for generating multipliers and expanding the economic possibilities, especially on projects that can sustainably generate employment. I believe it is urgent to put money in the hands of people to meet their basic needs before we create a real Hobbesian nightmare.
My next expectation would be that prices of some goods and services may fall, but perhaps by less than fifty percent. Which means in real terms people will be poorer, if incomes fall by 50 percent but average prices of goods and services fall by less than 50%. Is that a reasonableexpectation as an outcome?
The next is that this would be a sacrifice by labour, but what about capital? Would we expect that earnings by capital will also fall? Will this therefore disadvantage labour (wage earners), while capital is advantaged? How will that impact on interest rates, exchange rates, inflation, and investment? So far the decline in federation account receipts has been less than 50%. Therefore will an across board reduction in wages by 50% leave something more for capital expenditure? Will the above encourage consumption of locally produced goods and services and therefore create local jobs and dampen the frightening unemployment levels in Nigeria? Will this help with reducing poverty and crime?