By Henry Boyo
It has sadly become a tradition for annual fiscal plans to be packaged with flowery phrases which elicit the hope of Nigerians for rapid social and economic enhancement, from the implementation of the budget.
Regrettably, this promise of Eldorado is never fulfilled, while this hopeless cycle of social distress is unfortunately repeated annually. Sadly, therefore, the 2017 title of ‘Budget of Recovery and Growth’ is probably just another cosmetic expression, in the serial chain of failed budgets, which were similarly heralded as potential game changers to a gullible populace.
Hereafter, the salient features in the 2017 Budget will be discussed in an interview format. Please read on.
Question: In what way is 2017 budget similar to other failed budgets?
Ans: It will be fair to say that the success of any fiscal plan will correlate with the level of attention to details in the budget process. Indeed, any budget that is hastily put together without meticulous attention to realistic sources of revenue and the recognition of potential challenges to implementation, would invariably fail.
Sadly, in addition to the customary delay in passage, our fiscal plans often seem to be hurriedly consolidated and usually at variance with prevailing realties. For example, comprehensive budget implementation is clearly challenged when the President lays the budget, before Parliament, in December, such that formal approval will stretch beyond March/April of the budget year.
This regrettable lapse implies that there will be barely 8 months for implementation of the Capital budget, despite the critical responsibility of this sector, for infrastructural development. Unwittingly, the 2017 budget keeps faith with this unfortunate tradition, as it was presented to Parliament on 14th December, 2016; consequently, the expanded capital vote of N2.24tn in 2017, may like earlier votes, also fail to produce the expected positive change.
Question: The capital vote of N2.24tr is the largest ever capital allocation; surely, this should have positive impact on infrastructure?
Ans: As I said earlier, if the 2017 budget suffers from delayed passage, and there is no fundamental shift from the usual, uncoordinated schedule and process of budget preparation, approval and implementation, the 2017 capital budget will also be partially implemented. Instructively, in real value terms, the N2.24tn capital budget is unexpectedly much less than the N1.8tn Capital budget of 2016 and may infact be less than N557bn budgeted as capital expenditure in 2015.
The unexpected disparity is traceable to the Naira exchange rate. The 2015 N557bn capital budget was above $5bn with Naira exchange rate below N200=$1. However, with an exchange rate between N300-N500=$1, the N2.2tn projected 2017 capital budget may have unfortunately fallen below $5bn in real value terms. In this event, it will not be right to suggest that the capital budget is the highest ever.
Furthermore, several sectoral votes are clearly inappropriate and contentious, for example, the meager allocation of N448bn for education is barely 6percent of the total budget, and this is a far cry from UNESCO’s best practice recommendation of 26percent for this very vital sector.
Question: Why then is the 2017 N2.24tn capital vote canvassed as a very bountiful allocation that will promote economic recovery and growth?
Ans: Indeed, earlier budgets generally allocated about 70percent to recurrent expenditure, while infrastructural expenditure accounted for a relatively modest 30percent or less. Clearly, a 70percent capital vote should achieve much better results, if the rather nebulous components of recurrent expenditure are shrunk below 30percent.
Incidentally, the impressive gradual infrastructural enhancement, presently witnessed in Lagos state, is actually the product of the State government’s commitment to urgent infrastructural remediation by dedicating almost 70percent of annual budgets to capital and social infrastructural enhancement annually. Unfortunately, the Federal authorities have appeared unable to emulate this commendable Lagos model.
Infact, it is disturbing that despite, the elimination of over N1Tn annual fuel subsidy and thousands of ghost workers from government’s pay roll, and the multiple financial leakages which the Buhari administration promised to plug, together with the substantial funds recovered from treasury looters, recurrent expenditure inexplicably leaped from N2.65tn in 2016 to N2.98tn in 2017. Such expansion in consumption spending is certainly not in sync with the public’s perception of Buhari’s acclaimed frugality in governance.
Question: What about the critical benchmarks for crude oil price and output and the dollar exchange rate in the 2017 budget proposal? Are these realistic?
Ans: In recent years, Federal budgets were usually predicated on very conservative benchmarks for crude oil and output, even when market prospects were clearly brighter than the adopted benchmarks. Consequently, even when crude oil price and output remained exceedingly robust within the budget year, the more conservative lower benchmarks deliberately adopted, generally induced budget deficits.
Unfortunately, these deficits were funded by borrowing with rather oppressively high interest rates, for such risk free government loans. Alarmingly nonetheless, in addition to consuming the proceeds from these high cost loans, the additional revenue from the predictably more bountiful harvest of sustained high crude oil prices and output were unfortunately also consumed with no positive impact on social welfare and economic growth. In other words, Nigeria’s spiraling high cost borrowings were recklessly acquired even when revenue from crude oil clearly exceeded the earlier projected budget deficits for several years.
Conversely, the 2017 budget seems to have adopted very ambitious output and price benchmarks for crude oil; the National Assembly has already almost unanimously decried the exchange rate of N305/$ as clearly ambitious, because of the huge disparity between the adopted rate and N500/$ parallel market rate.
Consequently, the clearly intimidating N2.36tn projected deficit in the 2017 budget, will invariably be largely exceeded, if the ambitious benchmarks adopted do not materialize. Thus, the projected borrowing requirement of N2.32tn may still require supplementary loans in 2017.
Evidently, such additional loans will seriously challenge government’s capacity to service current debts for which over 35percent of aggregate annual revenue is already presently allocated. Ultimately, we may therefore require up to 50percent of aggregate revenue to service debts, especially when the recently ‘unearthed’ N2.2tn, which the Finance minister reveals is owed to various contractors from previous years is captured.
The debt situation will be compounded, if the undenied extra fiscal advances of about N1.5tn from CBN (not N4.5tn as alleged by former CBN governor, Sanusi) to government is also factored in. It is a no brainer that expansion in capital vote and economic recovery and growth will be challenged when N500bn is ultimately allocated out of every N1000bn aggregate revenue to debts servicing, particularly if consumption expenditure continues to spiral.
Question: Will the 2017 Budget be fully implemented with inflation rate at almost 20percent?
Ans: In reality, inflation reduces the purchasing value of all Naira denominated income values. Consequently, the proposed N7.3tn 2017 budget will lose 20percent of its value, if inflation trends beyond 20percent and/or if the Naira exchange rate further depreciates. Invariably, such seriously adverse monetary indices will clearly shortchange the scope of budget implementation.
Question: What is the relationship between the Medium Term Expenditure Framework (MTEF) and Budget 2017?
Ans: The 2017-19 MTEF and Fiscal sustainability plan is a consolidated 3year plan which seeks to promote continuity and efficiency in the budget process. However, Legislative approval of the MTEF should precede Parliamentary consideration of the 2017 budget. In the absence of such approval, the National Assembly may be constrained to return the Appropriation bill to the President for review, if the content of the fiscal plan is out of sync with Parliament’s expectations. Clearly, such an outcome would further delay passage and challenge full budget implementation, particularly of the capital expenditure component.