Nigeria could spend about the same amount paying worker salaries and running its various ministries, departments and agencies in 2019, as it did on capital projects, debt servicing and recurrent expenditure combined in the whole of 2014.
That’s after Nigerian President Muhammadu Buhari presented a 2019 appropriation bill that reveals the Federal government’s plan to spend a whooping N4.04 trillion ($13.2 billion) on non-debt recurrent expenditure next year, only $2 billion shy of Ghana’s total budget of $15 billion.
The amount is also 12.5 percent higher than the N3.59trn budgeted in 2018, following increases from salaries and pensions and provisions for implementation of a new minimum wage.
Although no specific figure has been provided yet, Business Day estimates the largest increase came from personnel costs which could be up by N1.25 trillion following a 66 percent review in the minimum wage.
In 2014, Abuja spent exactly the same amount (N4.04 trillion) on capital and recurrent expenditure combined.
The implication of committing so much to non-dent recurrent expenditure alone, not forgetting the somewhat negative outlook for revenues and debt servicing in 2018, is that Africa’s most populous nation could be left with little or no cash to invest in critical infrastructure next year, which has put a cap on economic growth and impoverished tens of millions of its people.
That sets the stage in 2019 for a possible re-hatch of the poor capital expenditure outturn in 2018 and could pave way for yet another year of struggles for businesses and households in Nigeria who bear the brunt of the country’s decrepit infrastructure.
As at December 14, only a paltry N820.57 billion had been released for capital projects, according to Udo Udoma, minister for budget and national planning in a budget performance presentation last week.
The plan in the 2018 budget was to spend some N2.87 trillion on capital projects, but the government didn’t have the revenues to make it happen. And it is probably the reason capital spend was trimmed by 18.57 percent to N2.28 trillion in 2019.
The government had raised only N2.8 trillion as at the end of September 2018, 53 percent of the cash projected for the period.
The underperformance comes largely as the N710 billion expected from some Oil joint venture asset restructuring are yet to be actualised.
“They have been rolled over to 2019,” Udoma, said of the proceeds to be realised from the deal.
That’s the second time it is being rolled over, to the worry of analysts who say the country’s ability to mobilise massive private capital will prove decisive next year and beyond at a time when public revenues are weak.
“There’s a need for investment! Investment! Investment! and we know the government can’t afford the scale we need,” said Bismarck Rewane, an economist and CEO of Financial Derivatives Ltd.
“When you compare growth expectations of 1.8 percent next year to population growth of 2.6 percent it becomes clearer that we are only going to grow poorer,” Rewane said.
In the third quarter of 2018, the economy expanded some 1.8 percent according to the National Bureau of Statistics (NBS) as a recovery in the oil sector creates an elusive growth. Since 2015, per capita GDP has shrunk and the IMF expects the trend to continue for another four years.
“Not a big surprise,” said Andrew Nevin, chief economist at Pricewaterhouse Coopers (PWC), in reaction to the IMF forecast.
“Nigeria needs investment of about N35 trillion a year to grow 6-8 percent and as long as we are only getting half of the investment we need, we are only going to grow at 2 percent and we are going to grow poorer,” Nevin said in a televised interview on CNBC.
“I think the fundamental question we need to ask is why we are only getting half the investment we need and what are the structural reforms we need,” Nevin added.
While the current administration has often admitted the need to leverage private capital in meeting its infrastructural needs, signs of implementation are scarce.
Take for example- the government has only raised N5 billion since 2016 in privatisation proceeds.
Some say the government is not willing to allow the private sector take charge of the economy or sell state assets, some of which are unproductive, because the dominant ideology in the ruling party believes it is akin to selling off a crown jewel to greedy business men.
“The government also shows signs of being led to believing it can provide the entire infrastructure needs of the country,” a business leader who did not want to be quoted said. “Looks like they don’t even know how much we are talking about here in terms of the quantum of investment needed vis a vis the money they earn,” the person said.
In 2018, the government’s revenue target was cut by 2.72 percent to N6.97 trillion, as three straight years of over ambitious revenue projections consistently missed the mark.
The government may struggle to realise that projection, especially now that oil prices could fall below the budget benchmark of $60 per barrel and production estimate of 2.3 million barrels daily looks increasingly untenable, after an OPEC imposed cut to 1.6 million barrels daily that was announced Thursday by the oil cartel.
To soften the blow of underperforming revenues, Abuja could turn yet again to borrowing as it has done in the past two years, without minding the cost.
The 2019 budget shows that the government plans to spend N2.1 trillion on debt servicing, 24 percent of total spending and five percent higher than in 2018.
Nigeria’s debt servicing costs have skyrocketed over time, hitting a record high of 67 percent this year.
Already, the International Monetary Fund (IMF) has warned the country about the unsustainability of its rising foreign debt stock, which has failed to translate to economic growth.
The Federal Government’s domestic and external debt (excluding states) is up 73 percent to N18.9 trillion as at June 2018 from N10.9 trillion in 2015, according to the Debt Management Office (DMO).
In the same period, GDP growth has declined from 2.5 percent in 2015 to 1.7 percent as at the end of the third quarter, with expectations for 1.8 percent full-year growth.
LOLADE AKINMURELE
