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BUDGET 2017: Celebration of national disgrace

BY DELE SOBOWALE

“It must be added that the appropriation bill is the most important bill for any national assembly.” Ike Ekweremadu, Deputy Senate President.

That was part of Ekweremadu’d contributions to the orgy of self-congratulatory messages which accompanied the announcement that the National Assembly, NASS, finally, in the second week of May, passed the 2017 Budget for a financial year which actually started on January 1, 2017.

The Senate President had earlier pointed to a lot of firsts in the process of passing the bill. Among these were: introduction of public hearing; laying down line-by-line details of the budget and making public the budget of the NASS itself. For the civilized world, these would be regarded as the basic minimum components of budget making. They are regarded as innovations in Nigeria because this nation is still backwards and led by people who belong in the Dark Ages. The lawmakers can have their self-congratulations if it makes then feel better. But, what they cannot have is our collective gratitude for passing the budget so late in the year as to make it virtually worthless from the standpoint of implementation. The only consolation comes from a sage’s observation. “Thank God for evil people for all the evil they could have done but which they didn’t do.”

President Muhammadu Buhari; Saraki, Senate President and Dogara, Speaker

The appropriation bill which the Deputy Senate President called the most important for any national assembly was actually held up for several days and weeks over such mundane issues as the police searching the Abuja home of the Chairman of the Senate Committee for Appropriations, the dispute over the appointments of Mr Magu and the failure of the Secretary to the Federal Government and Comptroller-General of Nigerian Customs Services to appear in official uniform before the NASS.

They could have delayed the passage of the budget indefinitely and nobody could have compelled them to hurry up until their self-interest forced them to act speedily. The 2016 Budget finally closed on May 6, 2016, weeks after the longest extension of a previous year’s budget in history. That effectively put an end to any branch of government spending money. Something had to be done in a hurry if government services would not grind to a halt. So, the passage last week was not in response to any sense of urgency on the part of the NASS, or out of respect for the people. It was largely in their self-interest to do it.

It is also pertinent to point to the N143 billion added to the original budget request by the Executive branch. Granted, the NASS has the power of the purse in a democracy. The Executive must limit itself to what the lawmakers ultimately approve. However, when the NASS tags on additional requests to those made by the Presidency, it needs to carry along the Presidency which must not only execute the budget but must find funds to prosecute them. On the face of it, nobody can question the need for a second runway in Abuja. But, funds were advanced for that purpose before and there is still a lot of questions being asked about what happened to the funds drawn down for that purpose.

Altogether, the N143bn added by the NASS amounts to a “poison pill” for the administration given the late passage of a dead budget. If the President vetoes the bill, it will be returned to the legislators who will thereafter accuse the Executive of delaying passage and implementation. If the President signs the bill as passed, it will be the first time that budget padding had been officially endorsed. The Executive branch would have become an accomplice after the fact.

That said, the budget passed cannot be assessed without reference to some of the benchmarks in the budget. With the benefit of four months gone, it is possible to ask if the budget still makes sense. The first port of call, naturally, is the export of crude oil.

Crude oil exports present a mixed bag for the first four months. The Organisation of Petroleum Exporting Countries, OPEC, in its Monthly Oil Market Report, announced that Nigeria’s oil output was 1.484 million barrels per day, bpd.   That represented an increase of 274,000bpd. The 2017 Budget was based on production of 2.2m bpd. So, in April, oil production was only 67.4 per cent of volume budgeted. That bad news was somewhat tempered by the price of crude which had remained above $50 per barrel for most of the period. That represents a 16 per cent positive variance over what the Government expected to receive. But the combination of 33 per cent lower volume and 16 per cent higher price would have produced less revenue from crude oil in the first four months. So, the budget passed so late might even be in danger before the President receives it – irrespective of whether he signs it or not.

Another comparison would help us in analyzing what to expect from this budget.   In the 2016 Budget, N1.58 trillion was allocated to capital projects. But, only N1.2trn or 76 per cent was eventually spent – funds could not be found for close to one quarter of all the projects envisaged last year. The 2016 Budget was N6.06trn in total; so capital constituted 26 per cent of the budget, but actual releases for capital amounted to only 20 per cent. In 2017, with N7.441trn approved, capital at N2.174trn represents 29 per cent of the total. This is a significant improvement on paper. The first question is: will the funds be released this year? The answer is “not likely”. So, the impact of the expenditure will not be felt in 2017 because close to half of the year is gone. The second question is: will the allocations to capital projects be fully released? The answer to that is “probably not”.

The reasons for pessimism are not difficult to discover. Despite all the noise we make the economy has not been sufficiently diversified to provide any other source of additional revenue to make up the shortfall in the price of crude oil. Furthermore, global crude oil prices will continue to swing between high-40s ($47/8) and low-50s ($50-55) for a long time. Each time the price of crude climbs to $52 or more shale oil producers flood the market and bring the price down. That situation will not change in 2017. Meanwhile, Nigeria’s chances of selling more crude are severely limited when other OPEC countries are cutting back production. It is only a matter of time before some of the OPEC members insist that Nigeria should also share in the common misery of crude oil producers.

Meanwhile, close to 28 per cent will go towards debt servicing; but, that only addresses old debts. With more debts to be sought to finance this year’s budget, it is a safe bet that over 30 per cent of the budget will go into debt servicing. That is not a healthy situation and cannot be sustained for long. The truth is, the Federal Government is reluctant to increase tax collection, is postponing Value Added Tax, VAT, increase and is delaying concession of a lot of facilities which are best handed over to the private sector to manage while the government provides the regulatory frameworks to protect consumers from exploitation.

THE WAY OUT

Dr Kalu Idika Kalu, a former World Bank country Manager and Federal Minister of Finance, was the “father” of the Value Added Tax, VAT, introduced to Nigeria to replace several badly executed Sales Tax laws on which states relied until then. This writer, a strong supporter of Kalu and VAT could recall the strong opposition to it then. Remove VAT from the monthly allocation between the Federal, State and Local governments today and many states would collapse in less than one year. VAT was supposed to be reviewed after five years. But, rising crude oil prices from 1995 till 2014 blinded our economic policymakers to the importance of its upward review. Even now, the review had been shifted to 2018 – whereas the relief from it was needed years ago!

The Federal Minister of Finance a few weeks ago was reported lamenting the low rate of taxation in Nigeria which is one of the lowest in the world. The Minister and the NASS should go and read about how Singapore manages its economy with special attention to taxes and levies for services provided by the government. Take legal services for instance. Federal and States’ judiciaries charge uniform rates for cases brought before them – even when some cases take more time, generate more pages of documents and tax the governments more than others. Litigants can choose to prolong cases because there are no penalties, in terms of levies, for so doing. Tons of paper and ink, as well as staff time, are consumed with no economic consequences to those wasting collective resources. A lot of these will stop once there are mandatory penalties imposed; revenue will certainly increase.

Nigeria is perhaps the only country in the world where the highways are free of toll gates. So, a fellow with one small old banger pays nothing for the damages done to the roads, firms with thousands of articulated vehicles each also pay nothing for their wear and tear. It requires no deep understanding of economics to realize that a situation such as this makes no sense. It does not allow the public sector to recover the expenditure for providing services for which it must pay good money.

The 2017 Budget, now passed, will do very little to foster rapid growth this year or early next year. When the year ends, it will pass into history as one more attempt – too little and too late – to really help us.


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