The magical budget

Just how far can the 2017 ‘Budget of Economic Recovery’ go in turning around the ugly fortunes of the Nigerian economy?

Nigeria’s economy is currently in a bad shape as challenges confronting it from both the domestic and international fronts heighten.
On the global front, economic activities have remained sluggish exacerbated by lower-than-expected economic activity in the United States, uncertain economic, political and institutional implications of BREXIT, weak demand in advanced economies and its spill-over effects, among others.
Locally, Nigeria has witnessed more than a halving of its revenues on low oil prices as well as crude oil production shut-ins resulting from vandalism of oil facilities. Just in 2016, four strategic oil fields, including Trans-Niger Pipeline and Nembe Creek Trunkline axis as well as the Qua-Iboe Terminal, were affected.
The economy is further battered by insurgency in parts of the North East; fuel shortages and increase in electricity tariffs, kerosene and PMS prices in the first half of the year; and foreign exchange (FX) scarcity.
“The foregoing factors have constrained fiscal operations, real sector activities, and the external accounts,” Udoma Udo Udoma, minister of Budget and National Planning, admitted recently in a budget speech.
The once Africa’s largest economy saw a 2.24 percent contraction in GDP in the third quarter of 2016; unemployment rate also surged to a high of 13.9 percent same third quarter, as inflation went up to a record high of 18.5 percent as at November 2016.
Due to low crude oil earnings, there have been elevated pressures on foreign reserves, now settling at slightly over $25 billion.
Meanwhile, slowdown in the corporate sector has resulted in lower credit quality and rising non-performing loans of local lenders.

Budget of economic recovery

Nigeria’s federal government has proposed a record N7.298 trillion budget for 2017 which authorities, interestingly, suggest would be solving almost every problem for the country now struggling its way out of economic recession in coming year.
President Buhari calls the proposed budget which he presented to the National Assembly on December 14 for appropriation “A Budget of Economic Recovery”.
The proposed N7.298 trillion spending is a nominal 20.4 percent increase over the 2016 estimates of N6.06 trillion. And, according to the president, the budget aligns with government’s Economic Recovery and Growth Plan (ERGP) and reflects present administration’s commitment to restore the economy to the path of sustainable and inclusive growth.
The proposed aggregate expenditure comprises statutory transfers of N419.02 billion; debt service of N1.66 trillion (22 percent); sinking fund of N177.46 billion (2.4 percent) to retire certain maturing bonds; non-debt recurrent expenditure of N2.98 trillion (40.8 percent); and capital expenditure of N2.24 trillion (30.7 percent) inclusive of statutory transfers.
“30.7 percent of this expenditure will be capital in line with our determination to reflate and pull the economy out of recession as quickly as possible,” the president notes.
The 2017 budget is predicated on the assumptions that naira average exchange rate could stay around N305 to the US dollar; crude oil prices at $42.5 per barrel; and that government would be able to ramp up oil production to 2.2 million barrels per day.
Based on these assumptions, Buhari’s government anticipates aggregate revenue available to fund the federal budget of up to N4.94 trillion, though 28 percent higher than 2016 full-year projections. Oil is projected to contribute N1.985 trillion of this amount.
Non-oil revenues – largely comprising Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies – are estimated to contribute N1.373 trillion.
The federal government equally sets a projection of N807.57 billion for independent revenues, while projecting receipts of N565.1 billion from various recoveries. Other revenue sources, including mining, amount to N210.9 billion.
Unrealistic assumptions?
Analysts have picked hole on these assumptions especially with intensifying pressure on the dollar/naira exchange rate which does not seem would abate anytime soon; crude oil prices which Nigeria does not have some level of control over; and especially the issues fuelling uncertainties in the Niger Delta which are not yet addressed.
Experts are asking about the government strategies to grow the independent revenues and their sources. Besides, the fiscal plan would result in a large deficit of N2.36 trillion for 2017 which is about 2.18 percent of GDP. The government intends to finance the deficit mainly by borrowing which is projected to be about N2.32 trillion.
According to the authorities, the intention is to source N1.067 trillion or about 46 percent of this borrowing from external sources, while N1.254 trillion would be borrowed from the domestic market. However, rising debt profile to fund mainly recurrent spending has been a major source of concern.
While 30.7 percent of this expenditure has been planned for capital, recurrent would take a large chunk of the spending, which analysts criticize. Personnel costs alone have been planned to gulp about N1.8 trillion.

Jumbo package for 4 ministries

If approved by the parliament, the country struggling with huge economic challenges would be spending about N1.46 trillion of its N7.298 trillion to fund the personnel and overhead costs of just four of its ministries – about 70 percent of the combined provision for personnel and overhead in the entire budget.
The four ministries include Interior for which N482.37 billion has been proposed; Education, N398.01 billion; Defence, N325.87 billion; and Health, N252.86 billion.
“They have the largest share because of the size of their personnel,” Udoma said, justifying the huge allocation.
According to him, some of the agencies and parastatals under these MDAs are yet to be captured on the Integrated Personnel Payroll Information System (IPPIS) platform and therefore, up to N2 billion has been provided in the 2017 budget for the capturing to ensure all personnel that are not enrolled on the platform are captured.

Private sector involvement

Authorities claim the 2017 budget is designed to expand partnership between public and private sectors, including development capital to leverage and catalyse resources for growth.
But they are quite silent on government’s stance on privatisation of public assets so as to allow the private sector to effectively manage them for economic good. The government is also silent on what is likely to be expected from privatisation proceeds.
Experts are concerned that there are inadequate policies to drive the much-needed investments as well as encourage private sector participation.
Unfortunately, lack of willingness on letting the private sector come in is shown in the fact that the National Council on Privatisation is yet to be set up.

Other key objectives of the budget

According to the budget breakdown, other key objectives of the 2017 budget include focusing on critical on-going infrastructure projects such as roads, railways, power, ICT, etc., that have quick positive effects on the economy; utilizing Special Economic Zones and Industrial Parks as vehicles to accelerate domestic economic activity for innovation and wealth creation; contributing to food security and creating platform for agro-business in agriculture supply chains through the Agriculture Green Alternative Plan; establishing a Social Housing Fund to deepen the mortgage system and expand its availability across all states of the federation; encouraging and stimulating the growth of small and medium scale industries for innovation, job creation, productivity and wealth creation; and providing social safety nets for poor and vulnerable Nigerians.
Another question being raised is how government would curtail wastages. So much has been allocated to power and other infrastructure for instance, but how about the talk about leveraging the private sector so that monies can be released on those areas and channelled into social investments like education, healthcare and so on.
“We still need to tweak the budget a little bit so that we don’t go back to the usual wasting of time on the budget and then, we end up with same results,” notes Dayo Akinjide, an Abuja-based financial analyst.
Government appears to have realised the need to reduce the demand for foreign exchange by producing as much as possible of what is needed in the country, from refined petroleum products to textiles, clothing and most of the food items.
Meanwhile, there are no deliberate, robust policies on the power sector in the past 18 months and supply is still at abysmally low levels.
Experience in the past year shows clearly that Nigeria does not have just a revenue problem, but specifically, a foreign exchange problem and must find ways of solving this huge challenge. 95 percent of the country’s foreign exchange comes from the oil sector.
Experts think that the Nigerian foreign exchange market is not yet fully liberalized and it has helped in creating different rates and distortions in the market.
“This does not encourage the much-needed FX inflows from alternative sources,” Akinjide adds.
Out of the N1.4 trillion planned expenditure for 2016, N753 billion so far has been implemented, which is below 40 percent. And the reasons are not far-fetched: government revenues have been and are still low coupled with the fact that even the budget was not passed in time, which is about to be repeated in the 2017 budget.
And it is interesting to know that government acknowledges that “to truly revive this economy, we must turn Nigeria into a nation of producers”.

 

ONYINYE NWACHUKWU, Abuja