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The dark side of the 2017 budget


It has sadly become a tradition for annual fiscal plans to be packaged with flowery phrases which elicit hope for rapid improvement in social and economic enhancement, with the expected budget implementation. Regrettably, the promise of Eldorado is never fulfilled, while the social distress of this hopeless cycle is unfortunately repeated annually. Sadly, therefore, the 2017 title of a ‘Budget of Recovery and Growth’ is probably just another futile expression in the serial chain of failed budgets similarly heralded as potential game changers.

Hereafter, the salient features of the 2017 Budget will be discussed in an interview format. Please read on.

Question: In what way is 2017 budget similar to  other failed budgets?

Ans: It will be fair to say that the success of any fiscal plan will correlate with the level of seriousness in the budget process. Indeed, any budget that is hastily put together without adequate attention to the realistic sources of revenue and potential challenges to implementation would invariably fail. Sadly, our fiscal plans are hastily put together without strict adherence to prevailing realties; for example, comprehensive budget implementation is clearly challenged when the President lays the budget, before Parliament, in December, such that formal approval will stretch beyond March/April of the budget year. This regrettable lapse implies that there will be barely 8 months for implementation of the Capital portion of the budget, despite the critical responsibility of this sector, for expanding socially supportive infrastructure.

Unwittingly, therefore, the 2017 budget keeps faith with this unfortunate tradition, as it was presented to Parliament on 14th December, 2016; invariably, therefore, the expanded capital vote of N2.24tn in 2017, may like earlier votes, also fail to produce the expected positive change.

Question: The capital vote of N2.24tr is the largest ever capital vote; surely, this should have positive impact on infrastructure?

Ans: As I said earlier, if the 2017 budget suffers delay in passage, with no fundamental change in the usual, uncoordinated process of budget implementation, the 2017 capital budget will also be partially implemented. In real value terms however, the N2.24tn capital budget is unexpectedly much less than the N1.8tn Capital budget of 2016 and may infact be less than N557bn budgeted as capital expenditure in 2015. The unexpected disparity is traceable to the Naira exchange rate. The 2015 N557bn capital budget was above $5bn with Naira exchange rate below N200=$1. However, with an exchange rate between N300-N500=$1, the N2.2tn projected 2017 capital budget may have unfortunately fallen below $5bn in real value terms. In reality therefore, it will not be right to say that the capital budget is the highest ever, as has been suggested by government.

Furthermore, some sectoral votes are clearly contentious, for example, the meager allocation of N448bn for education is only about 6% of the total budget, and this is a far cry from UNESCO’s best practice recommendation of 20% for this very vital sector.

Question: Why then is the 2017 N2.24tn capital vote canvassed as a very bountiful allocation?

Indeed, earlier budgets generally allocated about 70% to recurrent expenditure, while capital expenditure accounted for a relatively modest 30% or less. Clearly, a 70% capital vote should achieve much better results, if the rather nebulous components of recurrent expenditure are shrunk below 30%. Instructively, however, the impressive infrastructural enhancement, presently witnessed in Lagos state, is actually the product of the State government’s commitment to urgent infrastructural remediation by dedicating almost 70% of budget to capital and social infrastructural enhancement annually. Unfortunately, the Federal authorities have appeared unable to emulate this commendable Lagos model.

Infact, it is disturbing that despite the elimination of thousands of ghost workers from government’s pay roll and the multiple financial leakages which the Buhari administration promised to plug, together with the substantial funds recovered from treasury looters, recurrent spending has inexplicably leaped from N2.65tn in 2016 to N2.98tn in 2017. Such expansion in consumption is certainly not in sync with the public’s perception of Buhari’s alleged frugality in governance.

Question: What about the critical benchmarks for crude oil price and output and the dollar exchange rate in the 2017 budget proposal? Are these realistic?

Ans: In recent years, Federal budgets were usually predicated on very conservative benchmarks for crude oil and output, even when market prospects were clearly brighter than the adopted benchmarks. Consequently, even when crude oil price and output remained robust within the budget year, the more conservative lower benchmarks deliberately adopted, generally induced budget deficits which required to be funded by borrowing with rather oppressively high interest rates, that were inappropriate for such risk free government loans. Alarmingly nonetheless, in addition to consuming the proceeds from these high cost loans, the additional revenue collected from the predictably more bountiful harvest of sustained high crude oil prices and output were unfortunately also consumed in the same budget year. In other words, Nigeria’s rapidly spiraling high cost debts were recklessly acquired even when revenue from crude oil clearly exceeded earlier projected budget deficits.

Conversely, the 2017 budget seems to have adopted very ambitious output and price benchmarks for crude oil; parliament has also already decried the exchange rate of N305/$ as clearly ambitious, particularly because of the huge disparity between the adopted rate of N305 and N500/$ offered in the parallel market.

Consequently, the already intimidating N2.36tn projected deficit in the 2017 budget, will invariably be largely exceeded, if the ambitious benchmarks do not materialize. In such event, the projected borrowing requirement of N2.32tn may still require supplementary loans in 2017. Evidently, such additional loans will of course challenge government capacity to service current debts for which over 35% of aggregate annual revenue is already presently allocated. Ultimately, we may therefore require up to 50% of aggregate revenue to service debts, especially when the recently ‘unearthed’ N2.2tn, which the finance minister reveals is still owed to various contractors from previous years is captured. The debt situation will also clearly worsen, if the undenied extra fiscal advances of about N1.5tn from CBN (not N4.5tn as alleged by former CBN governor, Sanusi) to government is also factored in.

It is a no brainer that expansion in capital vote will be challenged if N500bn is allocated out of every N1000bn aggregate revenue to debt service alone, particularly if recurrent expenditure with minimal infrastructural impact continues to spiral.

Question: Will the 2017 Budget be fully implemented with inflation rate at almost 20%?

Ans: In reality, inflation reduces the purchasing value of all Naira denominated income values, consequently, the proposed N7.3tn 2017 budget will lose 20% of its value, if inflation trends beyond 20% and or if the Naira exchange rate further depreciates.



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