By Omoh Gabriel
The National Assembly last Wednesday passed the 2016 budget for the President to sign into law. After the President’s endorsement, it will become mandatory for the Federal Government to implement to the letter, the provisions of the budget. Now there is an economic guideline by which the administration of Buhari can be assessed.
The 2016 budget has very far reaching implication for the economy if not properly managed. The budget has good intentions but it has the potency of causing industrial unrest as it certainly will trigger off a general rise in the prices of goods and services in the economy during the year.
The first major problem in the budget as passed is that members of the National Assembly confess that the passed budget is ridden with errors. The errors may be the undoing of the budget.
The Chairman, Senate Committee on Appropriation, Danjuma Goje while presenting the budget admitted that there were still certain lapses in the budget which had not been taken care of. He said that the committee had to let the lapses go because any attempt to correct them would mean that the budget would stay longer before being passed and that Nigerians would not understand.
Does it mean that the padding of the budget was allowed to go? Why then the fuse about budget padding. It would mean that the National Assembly failed in its duty to the nation by passing a budget that has loopholes for the executive and civil servants to exploit.
A cursory look at the provisions of the budget showed that the National Assembly specifically reduced the total budget sum from N6.07 trillion to N6.06 trillion. In the budget, N351 billion is for statutory transfers, N1.4 trillion for debt service, N2.6 trillion for recurrent expenditure, and N1.5 trillion as capital expenditure.
The N17 billion reduction in the aggregate expenditure of the budget was taken from overhead votes component of the N2.65trillion recurrent expenditure of the budget which has now been reduced to N2.646 trillion
From the N351.370 approved for statutory transfers, National Assembly gets N115 billion; Universal Basic Education gets N77.110 billion; National Judicial Council gets N70 billion; INEC gets N45 billion; Niger-Delta Development Commission gets N41.050 billion; Public Complaint Commission gets N2 billion while National Human Rights Commission gets N1.210 billion.
These provisions are in the main for investment in infrastructure, payment of salaries and wages, pensions and debt service. They are not expenditure in the real sectors of the economy that will increase the availability of goods and services in the short to medium term.
Looking at the budget, bulk of the provision is for consumption spending essentially. The fundamental question to ask is: does the economy have the absorptive capacity to take the volume of money to be released without upsetting prices of goods and services in the market place? Certainly the government has made it clear that it is going to reflate the economy. By investing in infrastructure and paying contractors, many Nigerians working in that sector will be re-engaged and called back to work.
The spending will put money in the hands of Nigerians who will find work. They will certainly want to buy goods and services with the money they earn. This ordinarily should be the incentive for manufacturers and service providers to produce more. It could lead industries and other service providers to increase capacity and employ more hands. This of course is bound to reduce the level of unemployment if all things work well.
But in the immediate and short run, investment in industries and the expansion of the existing ones may take a while. While companies that have inventories of finished goods are in a good stead to sell off, there comes a period when their stock of finished inventory get exhausted and are not able to produce to meet the current demand from households. This is as a result of the fact that disposable income in the hands of Nigerian consumers would have risen.
This situation will give rise to a general increase in the prices of goods and services because the supply chain is limited. Already, the nation is facing foreign exchange crunch and may not be in a good position to provide the needed foreign exchange cover to import the needed goods. This will trigger cost push inflation as companies will produce at higher cost and pass the cost to the consumer. Nigeria at the moment, is facing imported inflation. This will have direct effect on the cost of living of the average Nigerian.
The National Bureau of Statistics has said that inflation is now 11.4 per cent. It has moved from a single digit to two digits before the passage of the budget. Certainly, when government begins to release funds into the various projects it intends to embark upon in the course of the year, inflation will further go up. The level of inflation the country will contend with during the year will depend on the decision of the spending ministries and their understanding of the inverse relationship between unemployment and inflation. If the government, as it intends to do, chooses to go for a drastic reduction in unemployment in the country at the present state of the economy, it must realise that it will have to increase spending.
Increased spending means more money in circulation that is more than the goods and services that are available. This can only lead to a situation where more money chases few goods.
The 2016 spending plan of the Federal Government will require fiscal discipline by adhering to planned release of funds into the economy and a very close collaboration with the Central Bank of Nigeria to tame inflation. By this budget plan, 2016 may be difficult for fixed income earners and pensioners among others. It may be a year Nigeria will once again witness agitation for review of wages by labour.