By Henry Boyo
THE National Assembly on May 16, enacted a federal budget of N9.12tn. The increase by N508bn on the N8.612tn budget, earlier presented to the legislature in November 2017, by President Mohammadu Buhari, was reportedly agreed with the Federal Executive, after crude oil benchmark was reviewed from $45 to $51/barrel, as export price steadily rose above $75/barrel.
Consequently, the Federal government will now spend N2.2tn for servicing its debts, while recurrent and capital expenditure will receive N3.515tn and N2.869Tn respectively in 2018.
Incidentally, if the controversial expenditure of $496m (N151bn) for US Tucano Jets and annual fuel subsidy payments, often in excess of N1tn, were also captured, the actual deficit may well exceed N3tn($9bn) i.e. over a third of total expenditure!
Ironically, the N2.2tn plus deficit will invariably still compel additional borrowing, which will compound Nigeria’s already unsustainable debt burden. Regrettably, however, additional revenue from higher than crude price benchmark, may not as usual, be applied to reducing the deficit. Instructively, our inexplicable compulsion to borrow despite the oppressive rates, to fund “mischievously” projected annual deficits, has never been restrained even when rising crude prices, unexpectedly consolidate revenue windfalls, which could significantly reduce projected deficits and the need for additional borrowing.
The above title was first published in November 2017. Hereafter, some salient aspects of President Buhari’s initial 2018 Appropriation bill will be addressed in the following interrogative prose. Notably, the N508bn increase in the fiscal plan does not significantly affect the observations in that article as the earlier projected deficit of N2.005tn will be reduced by just N50bn. Please read on.
In what way is the 2018 budget different from earlier fiscal plans that failed to stimulate inclusive growth?
Notably, apart from size, the 2018 budget structure is actually, the standard template adopted for decades; for example, despite reports of copious house cleaning and the additional benefit of over N20bn monthly savings from deletion of ghost workers’ salaries and the reported, plugging of revenue leakages, with several refunds and seizures of stolen public funds, etc, regrettably, recurrent consumption still accounts for over 70% of 2018 budget.
Furthermore, the budget, is, predicated as usual, on deficit financing; while the Appropriation bill is inexplicably also, similarly silent, on the often unbudgeted and unauthorized allocations to subsidize petrol price at N142/litre.
Although the 2018 budget was laid, marginally earlier in November 2017, it will nonetheless still fail, to align capital budget implementation with the institutionalized January-December fiscal year. Sadly, with the usual unforced, extended delays in budget passage, capital budget implementation will inevitably, become hurriedly compressed into less than nine months, to jeopardize, project quality and accountability in the use of funds.
Shouldn’t the highest ever budget of “N8.66Tn” for 2018 inspire hope that the economy will be well funded to improve social welfare?
Unfortunately, there is the popular misconception that bigger budgets translate into poverty reduction. But, this has not been so; unexpectedly, the incremental budget process has steadily bloated annual budgets, from less than 2Tn in 2008 to N7.28Tn in 2017, with no meaningful social impact. Besides, in real terms, the 2011 budget of N4.48Tn (when Naira was N150 =$1) is probably more in real value than the much higher N8.66Tn in 2018, with N305-60 =$1. So, we must not be fooled by quantum nominal leaps in budget spending, as this is inevitable, if inflation remains in double digits, and if CBN continues to bet against its own currency, with its clearly mischievous regular auctions of dollar rations against surplus Naira.
In view of reduced revenue from crude oil, isn’t it expedient that government should borrow heavily to fund the budget deficit?
Yes, you borrow, if you can, when it is expedient, but you must sensibly hesitate to increase your indebtedness, if up to 50% of your actual total income is already dedicated to service existing debts. Any advice to step up borrowing, in such circumstances, would be enemy action, particularly when, the application of earlier loans yielded no succor. Expectedly, the plus‘N1.6Tn’ projected 2018 deficit, will propel an already oppressive national debt, beyond $70bn and further compel larger allocations of scarce revenue for debt service in later years.
The scarcity of cheaper funds, locally has encouraged Mr. President’s preference for a 60% shift to foreign loans. However, in addition to the current bid to borrow $3bn externally, will Government seek more external loans to fund the 2018 budget?
The Finance Minster has clearly expressed preference for foreign loans, because she believes they cost lower with rates around 7%. However, it would probably be more responsible for her, to carefully interrogate, why cost of funds remain much higher in her own country, so as to align Nigeria’s borrowings with best practice rates, where responsible governments generally pay 2-3% on their loans.
Ironically, Adeosun has suggested that Nigeria may save up to (N91.65bn) from the present loan request before parliament for $3bn! In reality, foreign loans, can ultimately expose us to forcible manipulation by economic imperialists, who will, usually, demand their double pound of flesh.
Besides, Nigerians should demand a sensible explanation why government borrows dollars externally at 7%, when our own CBN sits comfortably on billions of dollars, which it auctions to banks and liberally allocates to BDCs, while it also, compulsively, simultaneously, borrows to mop up and sterilise excess Naira liquidity from the market, with inappropriately high interest rates, when the productive private sector is clearly denied access to cheaper funds.
Nigerians, should be concerned that if Naira rate tumbled from below N100 to N305 since 1998, a Naira rate beyond N1000/$1 is clearly also feasible, if the perennial, undenied systemic challenge of surplus Naira liquidity continues to be compounded with CBN’s dollar ‘rations’ auctions.
How do you rate some of the sectoral allocations?
I have long given up using the size of sectoral allocations as an index of development expectations, as increasing allocations to various MDAs, never seem to make any difference! However, the lion’s share of N555.88bn ($1.5bn) for Housing, Works and Power is clearly inadequate for these three critical sectors; for example, power alone, according to sectoral experts, requires over $100bn to stabilize supply. Invariably, government capital spending will always remain relatively marginal, in value, in relation to the requirement for expanded funding requirements in major sectors like Aviation, Shipping, Railways, and Refineries etc.
In practice, it is private sector rather than government that actually drives successful economies; for this reason, if the right policies prevail, availability of funds for private sector investments is invariably infinitely elastic; Consequently, it is rather inexplicable that government does not appear fully committed to concession as a way of remediating our infrastructural deficit, nor is there any commitment to UNESCO’s expert recommendation for Education to be allocated over 25% of total expenditure.