Will 2017 Budget End The Recession?
The Federal Government’s 2017 budget estimate of N7.298 trillion was presented by President Muhammadu Buhari to the National Assembly in Abuja last Wednesday, several weeks behind schedule. After the prolonged delay in presenting, passing into law and assenting to the 2016 Federal budget, hopes were that the 2017 budget will be handled much more expeditiously but this did not happen. Part of the delay was caused by a dispute over the government’s medium term economic framework, a final copy of which was only submitted to the assembly the day before Buhari made the budget presentation.
The 2017 budget’s key parameters, as outlined by the President, include a benchmark of $42.5 per barrel crude oil price, an oil production estimate of 2.2 million barrels per day and an average exchange rate of N305 to the US dollar. The first two are quite optimistic forecasts. Even though oil price is on the rebound internationally due to recent OPEC and non-OPEC production cut agreements, there is no certainty that this trend will hold. Oil production target of 2.2 million barrels a day is highly dependent on curtailing the activities of militants in the Niger Delta region. Some progress has been made in that direction but the situation is still fragile.
Buhari expects 73% of the 2017 federal budget to be sourced from non-oil revenues. N1.985 trillion or 27 percent of the 2017 budget is projected to come from oil earnings. Government expects to earn N4.94 trillion. Non-oil revenues comprising Companies Income Tax, Value Added Tax, Customs and Excise duties and Federation Account levies are expected to contribute N2.8 trillion. N565.1 billion out of these are from various recoveries. The budget will have a deficit of N2.36 trillion or 2.18 percent of GDP. Buhari said this would be financed by borrowing about N2.32 trillion. N1.067 trillion of this is to be borrowed from external sources while N1.254 trillion is to be borrowed from the domestic market.
President Buhari tagged the 2017 budget “budget of recovery and growth.” Days before he presented it to the National Assembly, he said next year’s budget will pull this country out of economic recession. We hope this is true but some signs are not encouraging. One big factor is the delay. It could be many months yet before this budget is signed into law. Another big indicator is performance of the 2016 budget. According to Buhari, 2016 federal budget’s performance as at September 30 was 79% “prorated full year expenditure.” Some semantics are clearly involved in this calculation.
Buhari blamed the slow pace of 2016 budget implementation to “a combination of relatively low oil prices in the first quarter of 2016 and disruptions in crude oil production which led to significant shortfalls in projected revenue.” Although revenue shortfall by September was 25% of projection, he said government met its debt service obligations and personnel costs. It also “largely covered” its overhead costs. Capital spending however took a big hit; N753 billion was released by the end of October. The president put a spin on it by saying it is the highest capital spending in many years, but that is cold comfort to citizens because it failed to ameliorate the ongoing economic recession. Buhari blamed the situation on both revenue shortfall and what he called “project formulation delays.”
Nigerians were very unhappy that the promise of a N500 billion social intervention fund in the 2016 budget failed to materialise. Date after date was fixed for the projects’ take off but as this year comes to an end, the only thing done was to publish the names of 200,000 youths employed in N-Power, less than half of what was promised, and even then the project dissolved in chaos with allegations of padding names and lack of posting information for the employed. Unless there is a drastic improvement in the government’s capacity to deliver on its promises and an end to “project formulation delays,” there is no hope that the 2017 budget will power us out of recession.
That is the main reason why, good though they sound on paper, we must take all the promises contained in the 2017 budget with a pinch of salt. 30.7 percent of the 2017 budget is said to be dedicated to capital projects, with the ministry of Power, Works and Housing getting the lion’s share of N529bn. N500bn is voted for special intervention programs including home-grown school feeding programme, government economic empowerment programme, N-Power Job Creation Programme, Conditional Cash Transfers to the poorest families and the new Family Homes Fund, the same programs that failed to take off this year.
Among other juicy promises is the allocation of N65 billion for the Presidential Amnesty Programme, N45 billion for rehabilitation of the North East “to complement the funds domiciled at the Presidential Committee on the North East Initiative,” N15 billion for recapitalization of Bank of Industry and Bank of Agriculture. The Development Bank of Nigeria, Buhari said, “will soon start operations with US$1.3 billion focused exclusively on Small and Medium-Sized Enterprises.” Also mouth watering is N213.14 billion counterpart funding for Lagos-Kano, CalabarLagos, Ajaokuta-Itakpe-Warri and KadunaAbuja railway projects as well as N50bn for development of new Export Processing and Special Economic Zones.
If at the end of the next financial year, Nigerians are again presented with excuses that these projects are not done either due to revenue shortfall, inability to borrow money or delays in project formulation, chances are we will still be mired in a recession or worse. We urge the National Assembly to expedite action and pass this budget into law as quickly as possible in order to remove one more reason for budgets’ recurring failures.