Now That We Have a Budget
With the signing into law of the 2017 Appropriation Bill by acting President Yemi Osinbajo, its implementation has commenced. Christened ‘Budget of Recovery and Growth’, can it really take the economy on the recovery path, Ndubuisi Francis asks
The 2017 Budget was signed into law halfway into the fiscal year, precisely June 12, 2017. Although President Muhammadu Buhari presented the draft 2017 Budget to a joint session of the National Assembly on December 14, 2016, the parliament passed the 2017 Appropriation Act five months later, exactly on May 11, 2017.
Signing of the budget was delayed because of disagreements over deductions by the National Assembly in the draft document from allocations to some critical infrastructure projects, including the standard gauge rail line, Mambilla Power Project, the second Niger bridge, and Lagos–Ibadan expressway, and reallocated to new projects introduced by the lawmakers.
But many have forgotten that apart from the disagreements arising from deductions, the controversy over the Medium Term Expenditure Framework (MTEF) and Fiscal Strategy Paper (FSP) had already come into the mix and played no mean role in the delayed passage of the budget.
As prescribed by the Fiscal Responsibility Act (FRA), the MTEF whose submission and approval usually precede the submission of the Appropriation Bill was rejected by the Senate as an “empty” document lacking in details when it was submitted by the executive arm of government. Yet, President Buhari went ahead to present the Appropriation Bill on December 14 while the re-submission of an acceptable MTEF to the upper legislative chamber was to come early in 2017. Therefore, the parliament took some time to peruse the MTEF for approval before actual work on the Appropriation Bill commenced.
This background information is necessary to appreciate the contributory factors to the late passage of the 2017 Budget with a view to avoiding such pitfalls in future.
Now that we have the budget in place, can those saddled with the task of execution put the implementation of the fiscal instrument on autopilot?
Budget of Recovery and Growth
The passed budget with an aggregate expenditure of N 7.44 trillion, representing an increase of 22.8 per cent over the 2016 budget provision of N6.06 trillion, reflects government’s fiscal plan to restore the economy on the path of sustainable and inclusive growth, the specific goals and targets of which are encapsulated in the 2017 - 2020 Economic Recovery and Growth Plan (ERGP).
It is predicated on certain key parameters, including an oil production of 2.2 million barrels per day (mbpd); benchmark oil price -US$44.5 per barrel; oil production - 2.2mbpd.
Others are an exchange rate of N305/US$, inflation rate (15.74 per cent), GDP growth rate (2.19 per cent) as well as nominal consumption of N87.95 trillion and nominal GDP--N107.96 trillion. Presenting the budget to the public early last week, the Minister of Budget and National Planning, Senator Udoma Udo Udoma, said the budget with an expenditure outlay of N7.44 trillion has Statutory transfers of N434.41 billion, Debt Service of N1.66 trillion, and a Sinking Fund of N177.46 billion to retire some maturing bonds.
Non-debt recurrent expenditure is N2.99 trillion, and a capital expenditure of N2.36 trillion inclusive of statutory transfers. The overall projected N2.36 trillion fiscal deficit is about 2.18 per cent of GDP, and within the 3 per cent threshold stipulated in the FRA.
The budget deficit is to be financed mainly by borrowings which have been projected at N2.32 trillion. Of this amount, N1.07 trillion (46 per cent) is intended to be sourced externally, while N1.25 trillion will be sourced
domestically. The debt-service-to-revenue ratio is projected to be about 32.7 per cent.
The recurrent non-debt expenditure of N2.99 trillion is made up of personnel costs - N1.88 trillion (63 per cent), overhead - N219.84 billion (7 per cent) Service-wide vote pensions – N89.98 billion (3 per cent); Consolidated Revenue Fund Pensions - N191.63 billion (6 per cent).Other Service-wide Votes - N138.70 billion (5 per cent).
Capital allocation is N2.36 trillion (inclusive of capital in statutory transfers). This represents 31.7 per cent of the total budget. Much of the capital provision is directed at projects that are aligned with the core execution priorities of the ERGP.
Of the total approved for capital expenditure (principally infrastructure), more than N500 billion is to be channeled into investments in roads, power and housing projects.
About 65 road projects are included in the budget. Some major capital expenditure allocations include: N553.71 billion for Power, Works and Housing; N241.71 billion for Transportation; N150 billion for Special Intervention Programmes; N139.29 billion for Defence; N104.24 billion for Water Resources. The sum of N81.73 billion is for Industry, Trade and Investment; N63.76 billion for Interior, and N151.91 billion for Education (including Universal Basic Education Commission); N55.61 billion for Health; and, N103.79 billion for Agriculture.
Some major initiatives in the 2017 Budget include: N100 billion provisioned for a new Social Housing Programme; N46 billion for Special Economic Zone Projects to be set up in each of the six geo-political zones to drive manufacturing /exports; N16 billion voted for the revival of the Export Expansion Grant (EEG).
Other major initiatives include: Special Intervention Programme (inclusive of the Home Grown School Feeding Programme, Government Economic Empowerment Programme, N-Power Job Creation Programme.
Conditional Cash
Transfers and Social Housing Fund) – N400 billion There is also a provision of N148 billion mostly for counterpart funds on projects to be financed by China for various railway projects (Lagos-Kano, Calabar-Lagos.
Similarly, there is a N40 billion service-wide provision to settle reconciled outstanding electricity bills of Ministries, Departments and Agencies (MDAs) as part of overall strategies to revamp the ailing power sector.
Revenue
Based on the key assumptions, the 2017 Budget envisages a total revenue of N5.08 trillion, exceeding the initial executive proposal by 2.9 per cent and 2016 projection by 31.9 per cent. The projected revenue receipt from oil is N2.122 trillion and non-oil is N2.96 trillion.
The contribution of oil revenues is 41.7 per cent compared to 19 per cent in 2016. This is driven mainly by Joint Venture Cash Call (JVC) cost reduction, higher production and price, exchange rate and additional oil-related revenues. 11 per cent of projected/revenue expected is coming fron recoveries of looted/misappropriated funds and fines. Udoma explained that the government already has in its kitty, the 11 per cent recoveries from looted/misappropriated funds.
Recapitalising BoI and BoA
One of the major moves captured in the budget to help the real sector in form of tax credits is the provision of N15 billion to recapitalise the Bank of Industry (BOI) and Bank of Agriculture (BOA) to strength their capacities to support Micro, Small and Medium Scale Enterprises (MSMEs).
The Controversy/Concerns
While the budget has been signed into law, a fresh controversy is brewing and may torpedo its seamless implementation.
The bone of contention is over the powers of appropriation, which has been called into question with the passage of the 2017 budget.
After signing the budget, the acting President Yemi Osinbajo had criticised the legislature for altering the budget, arguing that the parliament was not constitutionally empowered to alter the budget proposals submitted by the executive.
Some of the key projects affected by the National Assembly’s alterations included allocations to the Lagos-Ibadan expressway, the Mambilla power project, railway projects, the second Niger Bridge among others. Before signing the budget, the executive and legislature were said to have struck a gentleman agreement that the National Assembly should restore all the affected projects, upon the submission of a request by the executive, in a process known as ‘Virement’.
But with the open criticism of the lawmakers and the reported move to seek the intervention of the Supreme Court on whether or not the parliament has the power to alter the budget, the nation might be in for a long walk to bringing succour to a troubled economy, and by extension, a traumatised populace
Besides, there are concerns over the $44.5 per barrel benchmark set in the budget. Although oil prices rallied back to about $45 per barrel on Friday, they touched $42.05 per barrel, their lowest level since August 2016.
The Organisation of Petroleum Exporting Countries (OPEC) and other producers agreed to reduce output by 1.8 million barrels per day (bpd) from January for six months, and last month extended the deal for a further nine months until March 2018. However, oversupply has persisted, particularly with output rising in Libya and Nigeria, which were exempt from the cuts due to unrest that had limited their output.
OPEC and non-OPEC oil producers’ compliance with the deal to cut output reached its highest in May since they agreed on the cuts last year, reaching 106 per cent in May. OPEC supplies, however, jumped in May as output recovered in Libya and Nigeria, both exempt from the production reduction agreement. Libya’s oil production rose more than 50,000 bpd to 885,000 bpd after the state oil company settled a dispute with Germany’s Wintershall. Nigeria’s oil production is also rising as exports of the country’s Bonny Light crude are set to reach 226,000 bpd in August, up from 164,000 bpd in July. The situation is raising apprehension as to whether or not the benchmark price for this year’s budget is not ambitious.
Of the N5.08 trillion revenue in the budget, the projected revenue receipt from oil is N2.122 trillion. This is humongous. To achieve this means that both the quantity and price components must be consistent with budgetary assumptions.
Implementation
The Minister of Finance, Mrs. Kemi Adeosun had already assured that her ministry was ready to release N350 billion immediately as capital vote.
But this has drawn cynicism from some quarters bearing in mind that the same assurance was given after the unveiling of the 2016 Budget, but no releases were forthcoming for close to two months, and this was explained away.
Udoma had also disclosed that strenuous efforts were being made to find the resources required.
His words: “We are challenging our revenue generating agencies, particularly the FIRS and Customs, to improve their efficiencies and broaden their reach so as to achieve the targets set for them in the 2017 Budget.
Most importantly, we will strive to maximise the revenues we can generate from the oil and gas sector as it is clear that the foreign exchange generated from the sector is critical for our plans to diversify to the non-oil sectors.
The actual implementation of the capital budget must commence without further delay to see how much grounds could be regained.