As Budget Awaits Presidential Assent...
Funding Issues There are fears about the capacity of the government to finance the budget. Of the budget of N7. 44 trillion, statutory transfers are estimated to take N434.4 billion; debt service takes N1.84 trillion; recurrent expenditure N2.99 trillion; and capital expenditure N2.18 trillion (about 30% of the budget).
The approved budget is based on a benchmark crude oil price of US$44.5 per barrel (up from US$42.5 per barrel pegged by the president); crude oil production of 2.2 million barrels per day, and an exchange rate of N305 to a dollar.
While presenting the budget last December, Buhari said the aggregate revenue available to fund it was N4.94 trillion, 28% higher than the projections for 2016. Oil is projected to contribute N1.985 trillion of this N4.94 trillion.
Non-oil revenues, mainly Companies Income Tax, Value Added Tax, Customs and Excise duties, and Federation Account levies are estimated to contribute N1.373 trillion. Independent Revenues are expected to contribute N807.57 billion, while N565.1 billion is projected to come from recoveries as the government intensifies its anticorruption drive. Other revenue sources, including mining, would contribute N210.9 billion.
The projected deficit for the 2017 budget is N2.36 trillion (about 2.18% of GDP). Buhari stated in December, “The deficit will be financed mainly by borrowing which is projected to be about N2.32 trillion. Our intention is to source N1.067 trillion or about 46% of this borrowing from external sources while, N1.254 trillion will be borrowed from the domestic market.”
Many believe the monetary additions to the budget by the National Assembly may create funding difficulties in the budget implementation.
The National Assembly increased its own budget by N10 billion, voted N10 billion for commencement of work on the second Abuja runway, and N4.5 billion for renovation work on the Abeokuta airport as an alternate airport to the Lagos airport. It voted N13 billion to resolve financial obligations relating to the National Youth Service Corps, N5.1 billion to cover gaps in the Integrated Personnel Payroll Information System, and N25 billion as addition to the road sector.
Other interventions made by the National Assembly include financial allocations to the Amnesty Programme and for continuation of work on the abandoned Bwari-Aladja rail line.
But Mailafia says, “It is the executive that knows how much it is able to spend, and anything involving adding by the National Assembly gets me very worried.”
Besides, the $305 to a dollar exchange rate seems way off the mark, with the recent parallel market exchange rates of between N370 and N380 to a dollar. Most Nigerians buy foreign currencies from the parallel market.
“I believe in a market determined exchange rate. It’s a bit of an exercise in self-delusion because what is happening in the market out there is different from what we are setting as an assumption,” says the former CBN deputy governor.
Analysts say the allocation of 37% of total projected revenue, and 24% of the total budget to debt servicing also looks quite unhealthy for economic growth.
Tax Base
To effectively finance the budget, the government needs to expand its extractive capacity. The country needs a much more diversified revenue base. More people need to be made to pay tax and leakages need to be blocked.
Dada says, “Government has a very good opportunity to make the budget realisable. The loopholes should be blocked. There are many people that are supposed to be paying tax that are not paying. There are many areas government is supposed to collect revenue for services, but they are not paying. There are too many loopholes in Nigeria.”
But the reliance on manual tax processes, as against automated tax processes, at all levels of government in the country, and the lack of proper coordination through a national biometric database remain a big challenge.
Former Chairman of the Federal Inland Revenue Service and Chairman of Lagos State Employment Trust Fund, Mrs. Ifueko Omoigui-Okauru, says, “The more manual your system is, the more the level of leakage. And the less connected we are as government, the less taxes we can collect.”
PPP With a deficit ratio of 2.18% to GDP in the 2017 budget, Nigeria remains bankable in terms of access to loans. But many believe the government can free itself from the heavy debt burden that comes with borrowing by going into public private partnerships in the execution of infrastructural projects.
Nigeria is cash-strapped and certainly needs a lot of private sector involvement to be able to finance its budgets. Even with the additions made to the 2017 budget by the National Assembly, it is still hard to see how the budget can be adequately financed. In the area of works, for instance, there is an outstanding debt of N600 billion owed contractors. This makes the capital allocation to the Federal Ministry of Power, Works and Housing only a drop in the ocean, despite the N25 billion addition by the National Assembly.
Expansion
But regardless of the delayed budget and the challenges of implementation, the economy has shown signs of recovery. The Purchasing Managers’ Index for April published by the Central Bank of Nigeria increased marginally to 51.1%, from 47.7% in March. CBN says the increase implies an expansion in manufacturing sector activities after three months of contraction. Ten of the 16 sub-sectors reported growth in the review month in the following order: appliances and components; food, beverage and tobacco products; textile, apparel, leather and footwear; chemical and pharmaceutical products; cement; nonmetallic mineral products; printing and related support activities; furniture and related products; electrical equipment and plastics and rubber products. The paper products; primary metal; computer and electronic products; fabricated metal products; petroleum and coal products and transportation equipment sub-sectors reported decline.
The PMI is computed from the result of a monthly survey of purchasing and supply executives of manufacturing and non-manufacturing organisations in 13 locations in Nigeria – two states in each of the six geopolitical zones, and Abuja.
The Manufacturers Association of Nigeria has also reported an increased production capacity to more than 50 per cent, from about 35 per cent in 2016.
Economic experts believe the positive signs indicate that the 2016 budget was well-designed.
“Going into 2017,” says Chief Executive Officer, Fortune & Class Limited, Niyi Akinsiju, “I am hopeful that we have an anchor in the performance of 2016.”
Business Environment Many believe that the current improvements would be sustained in the short-to-mediumterm if the government pursues policies that increase access to credit and create an enabling environment for business. The executive and legislature are working hard to improve the country’s awful 169th position (out of 190 countries) on the World Bank Ease of Doing Business index for 2017. The Ease of Doing Business Council anchored by the Presidency, and the National Assembly Business Environment Roundtable are trying to change Nigerian business environment narrative.
NASSBER, in partnership with the Nigeria Economic Summit Group, is pursuing strategic engagements between the legislature and the private sector on critical laws and public policies that would improve the economic environment.
The National Assembly has of late prioritised the enactment and review of critical bills that would help the economic recovery process and improve Nigeria’s doing business ranking. The Senate has given attention to key bills designed to reposition the economy. They include the Company and Allied Matters Act (CAMA) amendment bill, which seeks the establishment of State Corporate Affairs Commissions, to register businesses at the state level; the Nigerian Ports and Harbour Bill, 2017, which seeks to improve efficiency, transparency and accountability in ports across the country; the Petroleum Industry Bill; and Public Procurement Act Amendment bill.
Others being pursued for enactment or amendment are the National Development Bank of Nigeria (Establishment Bill); Nigerian Roads Fund (Establishment Bill); National Transportation Commission Act; Investments and Securities Act; Warehouse Receipts Act; Federal Competition Bill; National Road Authority Bill; and Customs and Excise Management Act.
As part of efforts to encourage local manufacturers, the National Assembly has amended the Procurement Act to provide that all ministries, departments, and agencies of government must give the right of first refusal to Nigerian products.
If this amendment is signed into law and becomes operational, it is only when required products are not available locally that the MDAs can consider importation. Abdullahi says the Procurement Act amendment bill would soon be sent to the president for assent.
There are indications that the economy is on an upswing. But the country still needs to do a lot more to make the economic environment more attractive, accommodating, and reliable in order to achieve the recovery anticipated in the 2017 budget.