By Dele Sobowale
“Like all God’s creatures, enemies have a purpose in the world. They offer criticism of one’s conduct, albeit unsought, that is not always provided by friends.” Rosenbladt. (VANGUARD BOOK OF QUOTATIONS, VBQ p 48).

“Senate condemns 2017 draft budget, says assumptions unrealistic” – report in a national daily on November 24, 2016.

One of Buhari’s undeclared enemies just did him a favour. Former President Obasanjo, speaking at the Nigerian Institute of International Affairs, on November 23, 2016, had this to say about the Nigerian economy and the man at the helm of affairs of our nation. OBJ has never been known for diplomacy and he probably never read the book: How To Win Friends And Influence People. He has declared war against his junior retired General. Yet, Buhari will be best advised to read what his predecessor, twice, in office, had to say. It might save him more embarrassments and insults from Senator Melaye and company.

According to Obasanjo: “It is easier to win an election than to right the wrongs of a badly fouled up situation. When you are outside, what you see and know are nothing compared with the reality. And, yet when you are on seat, you have to clear the mess and put the nation on the path of rectitude, development and progress…The longer it takes the more intractable the problems may become.”

It was on the same day that the Senators were condemning the 2017 draft budget as well as the Medium Term Expenditure Framework, MTEF, 2017-2019, in words laced with anger and contempt for the Executive branch headed by Buhari. From all indications, it is going to take longer before Buhari can get the National Assembly, NASS, to approve of his plans to lead us into paths of development and progress. That also means the problems might become more intractable by the time he is free to act. First, we read what the Senators said about the documents sent to them. Then readers can go down a short memory lane to discover that SUNDAY VANGUARD had warned the Federal Government about many of these monumental errors earning the presidency insults now.

First, Senate President Saraki said: “There is no doubt about the fact that these projections are not realistic. There is no doubt that the exchange rate is not realistic. The Central Bank of Nigeria has said it is using N305 to a dollar. There is no doubt as well that throughout this year we did not achieve 2.2 million barrels per day even in peace time…”. That was mild criticism of the documents. Others were not so generous.

Senator Dino Melaye led the more brutal assault on the government’s position when he declared: “I want to say this document that I have before me, this MTEF proposals and projections for 2017-2019, is a lie. This document is not truthful, it is not honest, it is not transparent….The average of N290 exchange rate per dollar, is it realistic….The Gross Domestic Product is going down and this document is telling me, it is going up. So how do you corroborate this fraud?”

Senator Olujimi added: “This document is not what we expected, it shows the incompetence of those who prepared the document. We are talking of an MTEF/FSP that has failed to review the budgetary performance of 2016, how can we make the right projections for 2017.”

Finally, Senator Olamilekan Adeola wrapped up everything by saying that: “The economic team of Mr President is in disarray.”

Never in the history of NASS deliberations over an annual budget or MTEF had such hostile rejection of the documents taken place. Despite the fact that the ruling party is supposed to have a majority in the Senate, it is significant to note that not a single voice was raised in support of government. At this point, there is a need to summarise what the Senators have said – and as much as possible leaving out the insults even if deserved.

Six or seven major variables constitute the basis of any national annual budget until we sufficiently diversify our economy to render crude oil irrelevant. They are:

Udoma-Adeosun-Emefiele
  • crude oil volumes to be exported
  • average crude oil prices to adopt as benchmark
  • average exchange rate
  • interest rates
  • non-oil revenue projections
  • expected GDP growth rate
  • deficit or surplus expected and when

Granted, forecasting for the future in a dynamic global environment is hazardous business, but, it still must be done. There are individuals, even here in Nigeria who can and have been making fairly accurate projections of crude volumes and prices which have proved more accurate than those adopted by the Economic Management Team, EMT. At the risk of being accused of immodesty, as far back as October 2014, VANGUARD had already projected that crude oil prices for 2015 and 2016 will average less than $50 per barrel and the daily volume will be less than 2 million barrels a day. As 2016 is winding to a close, it is obvious that our forecasts have been more accurate than those of the EMT. The cardinal problem with wildly exaggerated crude oil revenue estimates, just to claim a political victory of proposing the largest budget in history, is that it invites correspondingly exaggerated expenditure demands by Ministries, Departments and Agencies. Consequently, when the revenue shortfall starts and accumulates, it generates deficits far in excess of what is in the budget and requests for loans inevitably follow and become desperate as the year progresses.

That is the situation in which we find ourselves today. The 2016 budget was defective even before it was submitted to the NASS. The lawmakers, on their part, were less than diligent and patriotic when they passed the budget largely as presented – after padding for their own benefit. The truth starring everybody in the face now is that the 2016 budget should not have been passed without substantial alterations, mainly, drastic reduction of the crude oil revenue estimates – which were self-deceptive. In fact, most of our problems with the current year’s budget can be traced to the negative variance in crude oil revenue account. Oil is not letting us down; our EMT is refusing to recognize the difference between election promises and the realities of governance. Because they want to export 2.2 million crude oil per day they ignore the market realities pointing to the folly of that assumption as the basis for the nation’s budget. The best budgets are based on solid facts not wishful thinking. All they needed to do was to call for the actual results for 2014, and 2015 – up to September 2015 – and it would have been clear to them what Saraki was saying. We have not in the last three years exported 2.2 million barrels a day of crude. So, why adopt it for 2016? We are now in November of 2016, and the records of export for up to September are available showing that we have averaged 1.6 to 1.9 million barrels per day at best. What sense does it then make to assume 2.2 million for 2017 to 2019? This is not even a question of economics; it is a matter of common sense.

Furthermore, next year’s budget, as Senator Olujimi correctly pointed out, is based on a thorough review of this year’s performance against budget plus projections for year-end results. This document must be included in the proposals for next year. EMT and the entire country must know how well they performed in the current year and where they have failed and why? Answering the question why we failed to achieve budget estimates in 2014, 2015, 2016 would have pointed to the mistakes to avoid in preparing the 2017 to 2019 estimates. Instead of following this time-tested approach to budgeting, EMT lazily plugged the same 2.2 million barrels per day into the projections for three years. Is anybody in that team thinking?

That said, it must be recognized by the President and the NASS that we have a huge problem on our hands. While the Senators were right to have condemned the proposals, and the House of Representatives might do the same, the two arms of government must be aware that the nation must have an Appropriation Bill for 2017 and MTEF for 2017 to 2019. Irrespective of whether the EMT is incompetent or fraudulent, the nation must move on. For this reason here are a few suggestions that should short-cut the process of amending the proposals received.

First, annual budget is becoming too important to be left to EMT alone – competent or otherwise. Someone suggested a public hearing. We can’t agree more; and    the sooner the better. Nothing gets done in Nigeria from December 20 until the first week of January. Second, everybody should agree to expunge 2.2 million barrels a day crude oil exports from the proposals. A figure like 1.8 million might be better.

The average price is fairly accurate and needs not be touched. Third, the CBN should be told in plain terms that N305 or N290 per dollar is unrealistic when today the rate is trending towards N450/$1. Fourth, EMT should revise the GDP growth rate down. No economy goes from sub-basement of -2.4% to +3% in one leap. Even the defective budget presented does not include enough investments to propel the nation to a +5.4% growth next year. That is realism; the EMT should stop day-dreaming.

Fifth, and this must stand by itself. Budgeting, even for fairly large multi-nationals, is a complex business and only the best trained and competent are assigned the task. It is also a 24/7 assignment. Tracking daily results, following reports about factors which could upset the budget estimates and trying to figure how they will impact the estimates is a cold-blooded task; no sentiments allowed.

Millions of peoples’ lives depend on how accurate the projections are. It is almost impossible for a fellow working in the financial analysis section of a global company and assigned the task of forecasting crude oil global production for each year to be so wrong for two years in a row and still keep his job. Here in Nigeria those who control our lives have been persistently wrong about one economic variable – crude export volume – and we still keep them on the job. Buhari needs to bring about a change.

Perhaps, that is what Obasanjo is trying to say – in his own self-serving way.

 

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