Budget 2016 in prospect

My motivation for making this contribution was an interview I had on the flagship programme of Channels Television News at Ten on Monday, November 16, 2016. As it is usual with such real-time encounters, one inevitably is left with a feeling that one had not done justice to the matter in hand. I have a passion for discussing the national budget and have done so since the 1980s, a period of three decades, and despite such regular and frequent interventions, one is often dumbfounded at the lack of widespread understanding of the underlying principles and philosophies of the budgeting process. I also commenced my work experience after my sojourn in England (Manchester Business School) at United Bank for Africa as the bank’s strategic planning manager and, therefore, one boasts of some hands-on experience in this regard. I am persuaded to open this discussion by declaring my bona-fides because of what I consider a landmark development with the planning process which has almost gone unheralded, uncelebrated and even criticized; that is the transfer of the Budget Office from Finance to report to the Planning Ministry. This is a fundamental development as it is probably in order to assume that one of the major impediments to budget implementation has been removed by this deft move.

It is not as if those of us with some understanding of the principles have not been clamouring regarding this realignment but the political will has been lacking. There is this general belief that the budget is a finance function, which generally accounts for the prevalent mindset that often sees the budget from the perspective of ability to incur expenditure and nothing more of any significance. But the budget in reality is an annual plan, to all intents and purposes. If you prepare a Medium Term Expenditure Framework, for instance – which really is another name for a three-year rolling plan – as the fiscal authorities are encouraged to do, and it is not appropriately linked with the annual budget, then there is no window for its implementation. The plan can only be implemented through adequate linkage with the annual budget. Indeed, in a three-year rolling plan situation, the first year of the medium term plan is often coterminous with the budget following the preparation of the plan. So when often one refers to the budget as annual plan and there is consternation, it underscores lack of adequate appreciation of the underlying principles! Therefore, the president must be celebrated for taking this laudable and long overdue step of transferring the Budget Office to Planning Ministry, thereby removing one of the major plan implementation impediments in this country.

The minister of planning is really the coordinating minister of the economy if we recall that the budget is the blueprint for running the economy a la the constitution which is the grand norm for our laws. It is the Planning Office that issues relevant guidelines for budget preparations and should ideally take initiative to ensure that the underlying principles and approaches to planning are imbibed by all concerned and participate as much as practicable in the planning meetings of the other ministries, departments and agencies of government. The ministry would also ensure and underwrite implementation through demanding and insisting on monitoring and evaluation of implementation. The planning minister is therefore often hands-on and cannot fall in the category of ministers who have recently been described as ‘noisemakers’. This explains why often the preferred occupant of this position is an academic or if you like an intellectual.

We are already running late with the preparation of the 2016 Budget. The MTEF should have been with the National Assembly long before now; the Fiscal Responsibility Act (FRA) advises that the draft framework of the MTEF along with the Fiscal Strategy Paper should be laid before the National Assembly at least four months before the commencement of the fiscal year. It goes without saying that once there is delay of this nature, the result is lack of adequate implementation of the budget which has been the bane of our budgeting experience, impeding the rapid growth and development of the economy. It is also imperative that the National Assembly gears up its Budget Office to be ready for the necessary collaborative efforts that would facilitate the speedy passage of the budget, making it rancour-free, deemphasizing horse-trading and removing in the process the cause of unhelpful delays.

A budget of the size of about N8 trillion is being rumoured. We need to reflate this economy to grow jobs, jumpstart capacity utilization and generally grow the economy. Budget 2015 is a little in excess of N4 trillion. Therefore, what immediately comes to mind is how the nation will find that quantum leap in funding considering the massive and deep drop in the price of oil! But in preparing the budget there are some obvious pitfalls, flaws and shortcomings that have undermined the effectiveness of the budget which should be addressed in the context of the change mantra. One of these is the unfavourable relatively large allocation to recurrent expenditure due to the large and growing workforce coupled with nefarious leakages due to corruption. One recently read that the capital component of 2016 Budget will be around 40 percent of the budget. Such a development would be most welcome and a move in the right and desired direction. In the recent past we did a ratio of 25 to 30 percent.

It will be salutary to attempt to grow revenue by increasing the tax base through bringing many compatriots who currently do not pay tax to begin to do so. The country is woefully deficient in this connection. At a ratio of 8 percent of tax to rebased GDP down from the hitherto rate of 12 percent, the country has some catching-up to do to reach the prescribed minimum of 25 percent. Budget 2015 introduced what it termed luxury tax which should be revisited and sustained. The message which must sink is that we do not have any option but to radically grow the tax revenue, including considering an increase in Value Added Tax rate. The FRA recommends a budget deficit of not more than 3 percent of GDP with the proviso that the National Assembly could approve a higher rate. A situation whereby subsidy payments for the last three instalments stand at N950 billion, more than the capital expenditure budget for 2015, makes it imperative that we crystallize a consensus that the time to deregulate the downstream petroleum sector is now. It is imperative to note that we are not here talking of appropriate pump price! With the budget size being bandied about and the challenges of revenue inflow, it does not take rocket science to guess that the deficit would be much higher than the indicative ceiling. As we do so we would find ourselves in good company since there are not many other countries with deficit as low as prescribed in the FRA.

The challenge is of course going to come from the strategy to be adopted for the funding of the deficit. As should be expected, the funding must be from a mix of sources. But what we should avoid is borrowing for consumption expenditure. As recommended by the FRA, we should borrow for investments and for human development. And we should deliberately target long-term concessionary sources of funding, i.e., with interest rates not exceeding 3 percent, if we are able to find such sources. As it has been claimed, an attempt would be made to continue to pursue the diversification of the economic base away from its deleterious dependence on the extractive oil sector and such a mindset should inform allocations to the various budget heads.

We would wish to recommend a prioritization of the power sector. We can leverage on recent developments with regard to unbundling of the power sector to charge the beneficiaries of the privatization exercise to keep fidelity to agreed deliverables, and if any parties proved conclusively incapable, to undertake a reversal to identify parties better equipped to discharge such mandate. It is obvious to all concerned that reliable power supply has the key to unlock the massive potential of this country. And if the budget is going to be pro-poor, then we must also prioritize the social sectors of education, housing, roads and security. And to grow jobs and attain food security, we must also pay due attention to agriculture value chain leveraging on the progress made with this sector by the immediate past regime. There is some ground to cover and this nation can no longer afford the luxury of any more delays.

Boniface Chizea