Nigeria’s fiscal stance not sustainable, Economist

By Babajide Komolafe
The spendthrift nature of fiscal activities of government in Nigeria  has been criticized as unsustainable.“It has been observed by this study that Nigeria’s fiscal stance is note sustainable”, said Proffessor Oyinlola Olaniyi of the University of Abuja .

“In spite of the huge oil windfalls over the years, the nation still spends all its current income on current consumption.  The entire capital vote for year 2010 is financed. Seventy per cent of this finance is from loans (both domestic and foreign), yet, less proportion of the budget is allocated to the critical sectors than the previous years budget did.

This will make it difficult to repay the loans from the stream of future income that the current investment would generate.

This is a dangerous path to tread as the oil windfall will not last forever”, said the Professor of Economics and Director of Consultancy Services Unit, University of Abuja at the at the 2010 budget seminar organized by the Nigerian Economic Society in conjunction with the Chartered Institute of Bankers of Nigeria  (CIBN).

In a paper titled “Analysis of the Structure of Sectoral Allocation of the 2010 Budget and the Implications for the Achievement of its macro-economic targets, he stated, “It is observed, however, that the distribution of the amount made available to the critical sectors largely reflect the relative importance of the ministries to the achievement of the objectives of the budget.

If the capital votes are efficiently utilized, and local factors are employed where practicable, primary income would be earned by the involved in the execution of the projects and the multiplier effect of this could stimulate the economy. The output effect of the enhance capital allocation to the police, power and agriculture should encourage investment and facilitate the achievement of the growth target of 6.1 per cent.

Technically, government spending is prone to be inflationary when it is not tax financed and when it does not mobilize unemployed factors for production.

Thus when a budgetary expansion is derived from a combination of the effects of devaluation of the local currency and increased borrowing, the possibility of imported inflation is very high.  The achievement of the inflation rate of 11.2 per cent targeted by the budget is therefore highly depended on effective management of the monetary variables and fund flows by the relevant authorities.

Also speaking at the seminar in a paper titled, “Fiscal Responsibility Act, Fifth Plan, Vision 2020 and Budget 2010 Consistency Analysis” Professor of Economics, University of Lagos, Professor, Tayo Fakiyesi said that, “ In other for the 2010 budget to be consistent the policy priorities for the budget should include: Staying the course on reforms – building robust and resilient economy.

In this connection, maintaining macroeconomic stability and ensuring financial sector soundness is critical; Improving public financial management, this entails sound budget preparation and effective execution, focusing on accountability and results; Enhanced focus on improving the efficiency of government expenditure and adopting belt-tightening measures in line with resource constraints;

Eliminating inefficiencies, corruption, leakages and rent-seeking activities, in the downstream petroleum sector through deregulation; Putting in place additional fiscal measures that would help stimulate the performance of our economy; Enhancing domestic resource mobilization and diversifying the productive structures (agriculture, SMEs, gas, solid minerals etc); and Promoting growth through appropriate trade policies while responding to the concerns of the organised private sector, especially power and transportation.