On Tuesday, 22 December, 2015, President Muhammadu Buhari personally presented the details of the 2016 budget before the National Assembly. We congratulate the president for returning the quintessential aura and halo surrounding the budget by personally taking the trouble to read out the text of the budget. This is reminiscent of the distant past when budget presentation was such a big, major event which commanded so much attention and respect. If you appropriately conceptualize the budget, it is really a major event in the life of any country as it is a veritable blueprint for husbanding the affairs of the country. It is also quite remarkable the short time it took between the presentation and approval of the Medium Term Expenditure Framework (MTEF) and the conclusion of work on the budget to be presented as it has now taken place.
Each budget comes with a title to it. For instance, this has been dubbed ‘Budget of Change’. I personally have issues with this caption as change is part of our existential reality and therefore a journey rather than a destination, as it would seem to be construed here by adopting this title. I made a presentation at an in-house retreat of a bank in the country based on the details contained in the MTEF, where I took the liberty to caption it ‘Budget of Economic Diversification, Inclusive Growth and Job Creation’. I thought this caption better captures the dilemma currently confronting the country in its unwholesome overly dependence on the oil market with all the related problems pertaining thereto. But as the saying goes, what is in a name?
What I intend to do in undertaking this review is to present the bare details of the budget, drawing parallels from where we are coming from to ensure that all readers are on the same page as we make progress. Thereafter, I shall isolate the major objectives of the budget, assess the realism that underpinned the determination of the budget’s key assumptions, and conclude the presentation by highlighting what makes the budget different while expressing an opinion on the prognosis going forward.
This is a budget of total expenditure of N6.08 trillion, up from N4.425trn in 2015, representing an increase of 37 percent. The estimated revenue is N3.86trn comprising oil revenue of N820bn, while an estimate of N1.45trn is from non-oil sources and N1.51trn is projected to accrue from other independent sources. Therefore, to the extent that we are able to implement this budget, we must have come to terms with the reality that funding from oil has been marginalized as revenue from oil now consists of only 21 percent of revenue, signalling the country’s freedom from the stranglehold of oil. Nigeria as a country is already diversified from the perspective of sectoral contribution to the Gross Domestic Product (GDP) as the oil sector only contributes 14 percent, while agriculture makes a lion-share contribution of about 22 percent which, when considered alongside the potential of agriculture to contribute to the employment of our citizens, makes agriculture the mainstay of the economy.
The deficit in Budget 2016 is of an amount of N2.2trn. And this deficit to rebased GDP is of the order of 2.16 percent which is lower than the indicative threshold of 3 percent as included in the Fiscal Responsibility Act 2007. Therefore, the country has some headroom to increase its borrowing from the perspective of this index. But when the deficit is considered alongside projected revenue, we have a disturbing ratio of 60 percent which would seem to suggest that we have over-leveraged.
It has been projected that a total amount of N1.87trn will represent the quantum of borrowing during the year. This amount is projected to be sourced N986bn from domestic sources while the balance of N900bn will be from external sources. There has been some uncomplimentary sentiments expressed in this regard questioning the capacity of the economy to absorb such quantum of borrowing and even the ability of fiscal authorities to raise this quantum of debt. But we need to reflate the economy to jump-start growth and the creation of particularly youth employment opportunities and therefore, in our considered opinion, this is movement in the right direction.
Informed opinion is of the view that borrowing is not the problem for as long as it is from concessionary sources (below 3 percent and for prolonged amortization) and it is targeted on increased capital expenditure and not for consumption, as it happened with Budget 2015 when the amount borrowed was in excess of the deficit contained in the budget. It has also been observed, and we concur, that we should leverage on private capital for the execution of some of the capital projects through the platform of the Public Private Partnership (PPP) scheme.
The fact remains that this country has some catching-up to do in the area of the mobilization of tax revenue. The country’s tax revenue to rebased GDP is 12 percent against the benchmark target of 25 percent, which means that we have to triple our tax revenue to make the mark. It is also a fact that in well-managed economies tax revenue is the only source for funding recurrent DAYexpenditure. There are also other numerous sources in the economy which we can also tap to generate foreign exchange, particularly in the agriculture, solid minerals and gas sectors. There is therefore no doubt that if we get our act together, the funding gaps we are now experiencing would disappear and we would then only borrow selectively for critical capital infrastructure.
The sectoral allocations are incomplete, and while allocations are indicated for recurrent and separately for capital expenditure for some ministries, it was not so for others and there were no allocations, for instance, to agriculture, environment and solid minerals, etc as per the details which the president presented. The following allocations were included: Education N369bn (6 percent), Health N296bn (5 percent), Defence N428.6bn (7 percent), Interior N390.3bn (6 percent), Power, Works and Housing N866.4bn (14 percent), Special intervention N500bn (8 percent), and Transport N202bn (3 percent). We would expect that the missing details would be provided as the National Assembly performs diligently its oversight function prior to the approval of the budget for implementation.
The objectives which Budget 2016 is aimed to achieve are to stimulate the Nigerian economy, make the economy more competitive by upscaling the provision of infrastructure. There is no doubt that it is appreciated by all stakeholders that making an economy competitive goes beyond the provision of infrastructure. It is also critically dependent on the sanctity of contracts and general rule of law, safety of lives and property, and not the least of the considerations is the maintenance of macro-economic stability, amongst other considerations. The budget also aims at prioritizing youth unemployment and to enhance the living conditions of a generality of the population and to achieve the diversification of the economy through the adoption of the strategies of import substitution and the growing of non-oil exports. There is no doubt that if we achieve commensurate implementation of Budget 2016, these objectives are realizable, and at least considerable progress is expected to have been made.
Some of the targets in the budget include a GDP growth rate of 4.37 percent which, when considered alongside the fact that the economy grew by only 2.8 percent in the third quarter of 2015, would appear somewhat ambitious. The benchmark price for oil of $38 per barrel is included in the budget with a daily production level of 2.2 million barrels. Available data indicate that we averaged a daily production of 1.9 million bpd in 2015. The benchmark for oil is out of sync with prevalent reality that even the president observed during the budget presentation that the price had fallen at the international market as he spoke to $32 per barrel. An exchange rate of N190 to the dollar had been included in the budget, same rate as in 2015, signalling the intention of the monetary authorities to stick to the template for the determination of the exchange rate and therefore no currency devaluation is envisaged. There were no targets for rate of inflation; probably the fiscal authorities have left that index to be determined by the monetary authorities who have clearly indicated their preference for single-digit level inflation.
It is time to consider some of the issues that made Budget 2016 different. The proper linkage of strategic plan to the budget, which was consummated following the transfer of the Budget Office to the Planning Ministry, was a masterstroke that radically altered the budget environment and at once augmented the probability of successful budget implementation. It is a pity that due to lack of adequate appreciation, this feat was not accorded its deserved accolades. The adoption of zero-based budget approach is tailor-made for economies such as Nigeria which are challenged for inadequate resource flow to better utilize and optimize whatever level of resource is available to up the ante on the hitherto incremental approach to budgeting, which erroneously assumes the prevalent level of expenditure as the take-off base. It also ensures better alignment of budget expenditures to the fiscal objectives. The budget pointedly prioritizes the welfare of the citizenry by creating direct jobs through targeted employment of graduates and NCE holders who should number 500,000 to be deployed to primary schools, thereby upscaling learning at that level and to enhance the potential for qualitative future wellbeing of a generality of our population. The proposal to upscale the financial management content of some small businesses through targeted training modules to make them better able to manage their businesses hit the bull’s eye as a major problem confronting such businesses is at once resolved.
The proposal to reduce tax rates for small businesses as well as to extend subsidized credits to priority sectors of agriculture and solid minerals are well thought-out developments. So also the decision to extend conditional cash transfer is pro-poor and recommended. But it is advisable to adopt due diligence in determining the extent of budgetary commitment which this measure would entail so that the country does not embark on a journey which is not sustainable. It is also more transparent to work out robust modalities for qualification as a beneficiary instead of the reported approach of compiling a register which is going to be subjective and leave room for the perpetration of conflict of interest. Homegrown primary school children meal-a-day scheme as well as free education for science, technology students and those majoring in education are well considered and supported as they have the potential to generate economic activities with multiplier effect, which could contribute directly to the desire to reflate the economy and make available the desired calibre of manpower.
But we must find the resolve to terminate the scam-infested subsidy scheme which, at an annual outlay of about N1 trillion, is no longer sustainable. It is always a mystery to understand a subsidy situation which is not sensitive to the price of the product being subsidized. We should, however, engage with interested stakeholders to make them see reason why this country cannot continue to make itself a laughing stock by sustaining this scheme. Nobody buys fuel outside the major towns at the regulated price and this is a fact. So it begs the question regarding who is subsidizing who. We should agree palliatives with organized labour to win them over and promptly deregulate downstream petroleum market to put an end to all the agony and trauma. We also caution that we must leverage on the success recorded in some sectors of the economy by the immediate past administration, particularly agriculture, to obviate avoidable waste.
We salute the members of the National Assembly for their cooperation so far regarding the dispatch and promptness with which approval for MTEF was received without going into unnecessary rancour with the executive regarding benchmarks which, in the past, left one wondering who really has responsibility for the preparation of the budget. We urge and encourage them to sustain the momentum for the speedy approval of the budget so that implementation could commence early so as to underwrite the success of the implementation of Budget 2016 as it is backed up with robust monitoring and evaluation templates.
Dr Chizea, MD/CEO of BIC Consultancy Services, writes from Lagos.
