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Budget 2019 and the blind leading the blind

By Henry Boyo

PRESIDENT Muhammed Buhari, finally laid the 2019 budget before the National Assembly, on Wednesday 19th December 2018; that is, barely 2 days before Parliament vacated for the Year End holidays. Incidentally, there was no apparent regret, nor indeed explanation why this mandatory process took so long; arguably, however, tardy implementation and gross distortion of the budget plan are the usual products of such casual approach to this critical national assignment.

President Muhammadu Buhari (M), presenting the 2019 Budget at the National Assembly in Abuja on Wednesday

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There was obviously, no lesson learnt from the 2018 budget which received Presidential assent in June 2018, and consequently left barely 6 months for executing a projected 12-month Capital budget. Ultimately, by December, just N820bn had been released out of N2.652tn budgeted for infrastructural enhancement.

The serial failure of the budget process since in 1999, is characterised by decayed Infrastructure, low productivity and rising rate of unemployment.

Indeed, the glaring failure of the current budget process to instigate more jobs creation and improved social welfare is clearly corroborated by the latest National Bureau of Statistics report that the number of unemployed Nigerians, had risen from about 17million in 2017 to well over 20million, a year later. The Brookings Institution (a Washington based Economic think-tank) Report of comparative poverty, lately, also concluded that Nigeria was presently the World’s Poverty Capital, with a capacity to stampede at least 6 people into poverty every minute!

Arguably, however, the poor annual budget performance, since 1999, is probably sustained by the erroneous concept, that increasingly bloated fiscal plans would translate into better infrastructure, improve social welfare and create more jobs.

There is evidently, however, little difference, for example, in the social impact between the last Administration’s relatively modest N4.92tn 2015 budget and the implementation of the much larger N7.44tn 2017 budget.

Thus, it would, be useful, going forward, to examine the critical, common features which continue to challenge Nigeria’s fiscal plans; thus, in addition to the regressive impact of extended delays and nominally bloated budgets, other factors, such as content of annual budgets will be examined; furthermore, the burden of an obtuse exchange rate mechanism, and crippling debt and service charges will also be given attention, together with the faux pas of sustaining a covert disenabling fuel subsidy scheme, even when Mr. President had contended, before assuming office, that fuel subsidy was a calculated scam on the treasury!

Finally, the financial impact of price and output benchmarks, adopted for government’s major revenue source, and the challenge of implementing the proposed minimum wage will be briefly considered.

Although, in contrast to earlier Administrations, the present government was expected, as an incoming, progressive, administration to tilt fiscal allocations, considerably, in favour of Capital expenditure; regrettably, however, PMB’s Administration seems satisfied to sustain the regressive average of 30/70 ratio between Capital expenditure and consumption spending, despite the obvious reality of our grave infrastructural deficit, in such areas as power, transportation, health and education. Currently, Expenditure on salaries and consumables still receive premium allocation, despite the reported elimination of thousands of ghosts workers and considerable savings from the adoption of a Treasury Single Account.

Worse still, in the 2018 budget, for example, only N821bn was so far released by December, out of the total of N2.87tn actually budgeted for Capital expenditure. Indeed, according to PMB in his budget address, “we have carried over Capital Projects that were not likely to be fully funded by Year end 2018 to 2019 budget.”

Regrettably, however, with Mr. President also laying the 2019 budget before NASS as late as December 2018, a substantial part of the 2019 capital budget, will similarly be carried forward to 2020 budget. Arguably, nonetheless, if a new administration comes into power, in May 2019, the implementation of the 2019 budget may suffer worse fate.

Invariably, the adhoc implementation of the Capital budget, obviously creates attractive opportunities for corruption and distortion in allocation. Consequently, it will apparently, not be in the interest of government beneficiaries to work assiduously towards earlier presentation of annual budgets to the National Assembly by 30th June of each year at the latest.

Curiously also, despite, relatively higher crude prices and output since 1999, the Naira exchange rate continued to depreciate. Indeed, if oil price spirals, once again, even well beyond $100/barrel, the Naira would still depreciate against the dollar as we have earlier witnessed; inexplicably, however, even when reserves fortuitously exceeded $60bn, the Naira rate continued to remain challenged, yet, conversely, the Naira remained stable around N80=$1 between 1994-8, even when, total foreign reserves was barely $4bn!

Nonetheless, because of this clearly incongruent Naira exchange rate mechanism, Nigeria’s increasingly bloated annual budgets are ultimately reduced to modest values when expressed in dollar rates. Consequently, the 2013 budget of N4.99tn for example, with N160=$1 is probably more in real value than the proposed 2019 budget of N8.83tn with N305=$ presently.

It is clearly unusual that we become cash strapped and heavily indebted, when about 90% of our foreign reserves, belong to the CBN, which liberally auctions and willfully applies these dollar values, while the owner of the CBN, i.e. the Government and People of Nigeria, must pay upto 7% to borrow the same dollars externally! Don’t make me laugh!!!

Notably, also, Nigeria’s erstwhile celebrated GDP of about $400bn, dwindled by almost $200bn overnight, with the collapse of the Naira beyond N305=$1 in 2016; furthermore, Nigeria has also become the World’s Poverty Capital, simply because the related value index for comparative assessment is usually denominated in US dollars, which inexplicably continues to rise against the Naira, even when crude price and output spiral and increase forex inflow into our Treasury.

Lately, Nigeria’s debt burden has, notably, almost doubled, much against public expectation, even when budget impact on infrastructure still remains intangible. Although, the 2019 budget accommodates a debt service charge of about N2.14tn, i.e. well over 20% of total budget, but, in essence, this is more like 50% of ‘actual’ budget revenue (i.e. without debt).

Indeed, unless the Naira rate, significantly improves against dollar, it will remain a major challenge to eliminate subsidy, and Nigeria’s debt burden will clearly continue to balloon; for example, if there is significant shortfall in government revenue as a result unexpected of lower crude prices and output, the need for  more borrowing to fund annual budgets will also become more compelling.

Arguably, the adoption of N30,000 Minimum Wage, may also not only fuel inflation but will also require to be funded with more external debt!

Incidentally, PMB’s government has decided to favour ‘cheaper’ external loans, with below 10% interest, rather than the more expensive rates (between 14-18%) for domestic borrowing, over which ironically, government should expectedly have better control.

Nonetheless, foreign loans are actually, only optically cheaper, as unrestrained Naira depreciation overtime would make external loans more difficult to offset, and this may ultimately kick start a new cycle of oppression and neo-colonization.

 

 


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