By Les Leba

Since the first publication ofthis article in January 2011,the unlikelihood of a beneficent impact of the 2011 budget has been given impetus by the National Assembly’s increase in consumption budget by N433bn and CBN’s increase of Monetary Policy Rate to 7.5%.

These negative initiatives may increase our debt burden and service charges beyond the N542bn projected, and restrain the growth of the real sector with higher cost of borrowing. Inflation rate may also exceed 12% with severe consequences for all income earners, especially for the poor, and the N18,000 minimum wage may bring little succor to recipients. Inevitably, the electioneering process and Finance Minister’s objection to NASS’s budget hike will also further delay President Jonathan’s assent of budget 2011, and compound its implementation.

“The purpose of the 2011 Appropriation as a budget of fiscal consolidation is to strengthen our macro economic environment and to achieve enhanced employment generation and wealth creation.”

The above excerpt from President Jonathan’s Budget proposals encapsulates the core expectations from the successful implementation of the 2011 Appropriation bill.

However in the first part of this article, it was made increasingly clear that Mr. President’s expectations may be expressed at best as mere wishes, “as the copious dose of good intentions contained therein regrettably has no strong underlying substrata to actualize the dream.”

The pillars on which the Appropriation bill proposes to situate a strong macroeconomic environment and achieve enhanced employment generation and wealth creation appear to be weak and stunted; indeed they are no different from those adopted in the failed federal budgets of the last two decades or so!

The moderation of the key issues of inflation, industrially friendly interest rate structure, appropriate exchange rate mechanism, infrastructural enhancement, security and reduced corruption and efficient utilization of scarce resources have always been paid considerable lip service, but expectedly, these budgets have generally failed on all these counts, only for the same promises and strategies to be eagerly rehatched, and clothed in new garb in subsequent budgets.

For example, Mr. President expects that industrial regeneration and expansion will commence once AMCON, the new government_sponsored kid on the block, soaks up the toxic assets of banks, thereby providing them with new funds to extend credit to the real sector. Jonathan’s ‘hope’ that “banks would accept their obligation to lend to the real sector in return for these support measures” is as usual misplaced! We recall similar expectations in the past. Consolidation and increase in banks capitalization from N5 billion to N25 billion and the various cash injections to save some ailing banks in the last five years did not succeed in revitalizing the real sector or indeed in generating employment. Inspite of the recognition of the need/desire for single digit interest rates, industrial and commercial lending rates have consistently remained above 20%.

Again, the problem was not lack of cash, as CBN has fought a perennial and unsuccessful battle with so_called excess liquidity or too much cash in the banking sector for over twenty years! In disciplined economies, banks would be expected to make money from service to the real sector, but our lot in Nigeria has been that of prosperous banks whose profits substantially comes from lending back money to government and other such underhand and unethical practices as forex round tripping, unbridled and uncollaterised margin lending; none of which endeavours impact positively on our economy.

But why should banks care, after all, the 2011 Appropriation bill has already earmarked the sum of N542bn (over 50% of the capital budget) to debt servicing. Needless to be reminded that the banks will be the major beneficiaries of this largesse! The question is how can the same banks who continue to benefit from excessive government cash injections also be the main beneficiaries of government debt service expenditures?

Incidentally, the proposed debt service figure of N 542bn may turn out to be actually modest for a number of reasons. If for example, the 2010 debt service was also about N 540bn, it is reasonable to expect that with the need for government borrowing to supplement RECURRENT expenditure (Salaries, allowances, incidentals) of over N2,481 billion, in addition to current debt service charges, the banks will certainly wear broad smiles at the end of the year.

Secondly, the Appropriation bill makes no mention of external debt service and fuel subsidies! Indications are that our external debt which the authorities claim was below $4bn last year may have actually increased as a result of fresh borrowings in 2010 and other proposed additional foreign loans in 2011. Even when government recognizes that our external loans should normally attract low interest charges of below 3%, the service charges for external loans whenever government chose to reflect these in annual budgets has always been in excess of 12% and indeed touched 18% during the Obasanjo years!

Finally, it must be said that AMCON’S incursion into the money market as prime borrowers of up to N2500bn in the next year or so will inevitably balloon our domestic debt by about $15bn. In the event that interest payable on this tranche of sovereign instruments averages about 10%, the provision of N542bn as projected debt service in Jonathan’s 2011 Appropriation bill may well be a gross underestimate. In any event, our national debt burden come December 2011 may well be in excess of $50bn, which makes the earlier excruciating burden of $35 or so billion dollars of four years ago pale in comparison!

Well, the above debt burdens maybe condoned if, as per Mr. President’s expectation , real sector growth, employment and wealth creation would be the positive products, but alas, in the light of the loose and the unfettered nature of these loans, it may not be prudent to place a bet on a fruitful or successful dividend.

Once again, fortuitous increase in crude oil price above $90/barrel will increase the value of fuel subsidies over and above the current estimates of N500bn; surprisingly, no reference was made to this albatross in the 2011 appropriation bill! It is evident, however, that when this amount is inevitably captured in the budget estimates, the actual deficit will not only be much higher, but overall debt service charge may approach N1000bn, almost at par with the proposed capital budget of N1005bn and over 20% of expected revenue of N 4226bn. The unwritten fiscal rule for progressive growth in an infrastructurally deprived state such as ours is the conscious tilt of expenditure towards capital formation. Lagos state administration for example, has largely imbibed this doctrine and over the last three years, capital expenditure has progressively exceeded 60% while reducing recurrent expenditure has been better managed. The result is clear improvement in provision of security, health, education and transportation in the state.

By contrast, the 2011 Federal Appropriation bill has allocated less than 24% to capital expenses with 76% allocation for recurrent and debt expenses. No cognate observer would accept this as a positive signal of President Jonathan’s desire to seriously address our infrastructural deprivations.

It is begging the question to defend the disparity with the obnoxious excuse that current provision of N1005bn is in fact much higher than the N 919.5bn “actually utilized in the extended 15 months of the 2009? Fiscal year!”

President Jonathan observes that even though a total of about N900bn has been released or cash backed for capital expenditure in 2010, “capital performance varies across the MDA’S , and confirms that average capital utilization is just under 50% as at the end of October!”

Over the years various administrations have often confused capital releases with actual successful implementations. Of course, Nigerians know better! Incidents of unspent budgets at the end of every year remains a permanent feature of our fiscal landscape. All manner of control agencies and systems have been adopted by different administrations to foster accountability and “capital project management best practices” but so far the cancer of self interest and corruption have remained resistant to all prescriptions. There is nothing to show that President Jonathan’s 2011 bill has found an antidote, not even the proposed global project management firms will do the trick; sooner than later they will, like Halliburton, Siemens, etc become compromised by the Nigerian disease.

Even though, the current Appropriation bill does not specifically set any target for inflation rate, it would be unrealistic to expect that the indication of a rate of 13.4% as at October 2010 will positively work in favor of strengthening our macro economic environment, achievement of enhanced employment generation and wealth creation as per Mr. President’s expectation. No economy became successful on the platform of such antagonistic inflationary level, especially when inflation rate of the family food basket, often times exceeds 15%! Such high rates invariably set the stage for significant loss in the value of personal incomes and becomes a retrogressive instrument for reduction of social welfare and the standard of living. It also becomes a great disincentive to savings, particularly pension funds; basic economics suggest that without savings there can be no investments, thus until the inflation rate is brought down to lower single digits, Mr. President’s dream of a vibrant industrial and investment climate will certainly be moon lighting.

Further more, such a climate can never lead us on the correct path to government’s vision 20:2020. Indeed it has been speculated by government that Nigeria would need to grow its gross domestic product by an annual average of 15% to achieve vision 20:2020 certainly, the current growth rate of 7.85% for 2010 is many milestones behind this benchmark. There is yet no convincing framework in the 2011 Appropriation bill to energize or jumpstart our drive to the Promised Land.

Finally, the oil production benchmark of 2.3 million barrels per day and $65/barrel crude price have become meaningless as planning tools or as indicators of potential revenue. Variation on these benchmarks over the years never seems to affect the level of deficits. Besides, no proper accounting or fiscal balancing has ever been made available in the light of actual revenue from varying crude oil prices over the course of every year, even though prices have never fallen below budget benchmarks at anytime.

Indeed, prices have often climbed by up to 50% of the benchmark, but never have accurate statistics been openly available to determine by how much the huge price variation compensated the occasional variation in crude output & export.

Besides, government has liberally used the instrument of deliberate Naira devaluation for revenue generation. In this event, the value to be derived from government’s budgetary benchmarks may have been significantly diminished.

What is clear from the above discussion is that 2011 will be a time of suffering aplenty for the vast majority of Nigerians, and the co_incidence of national elections into the various political assemblies may not encourage accountability and prudent management of our resources.

SAVE THE NAIRA, SAVE NIGERIANS!!