Is 2017 Budget also another sandcastle?
A fiscal plan is usually a clear and precise statement of what government realistically expects to earn as income and how much it will spend within a given time frame. Thus, in a year, if projected income should exceed expenditure, a surplus will be available as savings or to responsibly apply to funding vital social infrastructure. Conversely, where projected expenditure exceeds actual income, the shortfall will invariably be funded with loans or savings.
Regrettably, Nigeria’s fiscal plans, despite several years of bountiful oil revenue, were predicated on increasing levels of projected deficits, which were usually funded by borrowing, with inappropriately high interest rates. The 2016 budget is sadly the same, as about N2tn (over 35 per cent) was allocated from the projected total spending of N6.06tn, to service debts. Regrettably, until lately, the National Assembly had never publicly expressed concern on such oppressive debt service charges.
Although the Minister of Budget and National Planning, Udoma Udo-Udoma, recently reported “a 79 per cent performance ratio of the pro-rated budget for January-September 2016”, there is sadly, so far, no respite from the social anguish in an economy in distress, and indications are that our predicament could get worse as we approach 2017.
The failure of Budget 2016 to reverse the economic downturn was probably foretold by the wide disconnect between the promises of a better life and the actual reality of dashed hopes from preceding fiscal plans, which were unfortunately also usually heralded as a panacea for the serious economic challenges we endure, even when recurrent consumption accounted for over 70 per cent of these budgets.
Similarly, favourable speculation also preceded passage of the 2016 budget. Sadly, however, soon after enactment, clearly against the government’s earlier hype of redemption, the economy went instead into a tailspin. Although the writing was clearly on the wall, authors of Budget 2016 obviously could not foresee the looming spectre of massive naira devaluation and over 50 per cent increase in petrol price.
Unfortunately, the 2017 budget process seems destined to follow the same path that yielded negative socio-economic returns in the past. For a start, Budget 2017 may now be placed before the National Assembly, probably less than two weeks before the usually extended year end parliamentary recess. Consequently, if the legislature steadfastly commits to a thorough evaluation to achieve consensus with the executive blueprint, enactment of the 2017 Budget may probably not come before April 2017, such that barely nine months will be left, as usual, for implementation of the usually, relatively modest capital budget.
However, if the National Assembly simply flips through the budget statement, in solidarity with Mr. President, the 2017 Budget will most probably receive an early approval, but will invariably also fail to fulfil public expectation for economic revival. It may be suggested, however, that legislative evaluation will be thorough and approval should similarly be timely, since the 2016-19 Medium Term Expenditure Framework, on which the 2017 Budget was predicated, was forwarded to the National Assembly since September 30, 2016. Although after the initial vociferous calls to return the document to Mr. President to provide supplementary details relative to the proposals, the Senate eventually soft-pedalled and subsequently agreed to appraise the MTEF document. Nonetheless, Senate Leader Ali Ndume (APC) has described the document as “completely empty” and also noted that “you cannot build something on nothing”. According to Ndume, the Budget Minister had failed, so far, to respond to Senate request for “a comprehensive report on the implementation of the 2016 budget”, so that 2017 Budget does not become unnecessarily encumbered with duplications of expenditure already captured in the 2016 Appropriation Act.
On the issue of debt, Ndume has also called for a report on the “structure of debt composition, sources of funds and how borrowed funds are to be spent, as well as evidence of a reasonable repayment plan and schedule for national debts.”
Finally, the Senate Leader is also concerned that relevant information has still not been provided for the “fiscal rates, taxes, charges, etc from which the projected 2017 N6.80tn revenue was derived”.
Similarly, while commenting on the same allegedly inchoate MTEF, Senate spokesperson, Senator Aliyu Abdullahi (APC), wondered “if the Federal Executive is not padded with people who want to frustrate the government”. Nigerians will recall the undenied allegations of padding and duplications that stalled presentation and passage of the 2016 budget. Sadly, it seems nothing has changed almost a year after that national embarrassment.
Ultimately, however, the consensus across party divides in the Senate is that the critical assumptions predicating the 2016-19 MTEF “were clearly unrealistic”. Senator Dino Melaye (APC), for example, insisted that the N290=$1 assumption adopted was not “achievable and unrealistic” and therefore described the MTEF as a “lie”, while Senate President Bukola Saraki (APC) also agreed that, in addition to exchange rate, the oil price projection of $42.5/barrel, and 3.02 per cent projected GDP growth rate, respectively, were also unrealistic. Invariably, the projected oil output of 2.2mb/day may also be unattainable if the scourge of militancy in the Niger Delta remains unresolved.
Apart from legislators’ concern on the integrity of the MTEF, it will clearly be a grave misadventure if the imminent danger of inflation spiralling beyond 20 per cent is not also recognised as a virulent spoil sport, in any attempt to reverse the current dismal economic trend, especially when further naira devaluation could also propel petrol and energy prices. So, the question is, will the promises of economic renewal in the 2017 Budget, like its predecessors, also become the hyped stability of an elaborate sandcastle by the sea?
Indeed, despite the imminent drop in crude oil price and output, caused by a clearly foreseeable trend in the crude oil market and restiveness in the Niger Delta, it was unconscionable that the N6.06tn 2016 budget still accommodated an unexpected 33 per cent increase on the retrospectively modest 2015 N4.4tn budget. Regrettably, no lesson seems to have been learnt, as the 2017 Budget has further expanded government spending nearer N7tn, even when crude oil price may remain below $50/barrel for the greater part of next year.
Ironically, the bloated expenditure budget for 2016 may have inadvertently also expanded money supply to increasingly fuel inflation to make millions of lives more miserable. Worse still, probably against public perception of President Muhammadu Buhari’s astute frugality in financial management, recurrent expenditure was inexplicably, also significantly, increased, only to be partly funded with more high interest loans, rather than through prudent fiscal management.
The forlorn hope was that the seemingly entrenched practice of treasury looting and several other miscellaneous financial leakages, including billions of naira reportedly paid to thousands of “ghost” workers, would be arrested, to reduce recurrent expenditure. Sadly, however, the reality is the reverse increase in recurrent expenditure which will invariably worsen our already debilitating debt burden. Consequently, Mr. President’s present consideration of a fresh $29.9bn loan may ultimately, tragically spur Nigeria’s debt burden, closer to $100bn, such that over 50 per cent of total income may ultimately be required for debt service annually. Clearly, the intimidating constraint that such a monstrous debt profile will have on national development and social welfare will certainly become horrifying and far-reaching.
Incidentally, according to Udo-Udoma, who spoke at a recent KPMG CFO forum, “government had already spent about N3.577tn out of the N6.06tn 2016 budget by September 30; of this sum, N1.138tn i.e. over 35 per cent was expended on servicing domestic and foreign debts. However, since the 2016 budget, like others before it, was all denominated in naira, the minister regrettably, did not disclose the source of dollars or what naira exchange rates were applicable to the dollars exchanged to settle these foreign debts.