2018 Budget: Turning the Country Away From a Regular Fix
28 per cent, which has crowded out private businesses from borrowing and leaving all available credit to government, yet they say doing business in Nigeria is improving.”
In the 2016 “Budget of Change”, the first full year budget of the Buhari administration, the estimates were prepared against the background of global economic growth and record fall in crude oil prices. It was built on the zero-based budgeting principle. The federal government was said to have spent only N3.577 trillion out of N6.06 trillion budgeted for the fiscal year. The government earmarked an impressive sum of over N1.2 trillion for capital projects in the 2016 budget, which was the highest ever in the history of Nigeria. But not much of that was implemented.
The 2017 budget of N7.441 trillion has a total capital expenditure estimate of N2.177 trillion. The president admits that only N450 billion of the capital vote had been released as at the end of October 2017. He says the target is to release up to 50 per cent of the capital vote for the Ministries, Departments, and Agencies of the federal government by the end of the year.
Many of the capital projects in the 2017 budget would be carried over to the 2018 budget, with the potential danger of hindering the active conception and implementation of new projects.
Economist and lecturer at the University of Port Harcourt, Professor Okey Onuchukwu, says such excessive carryovers do not augur well for the economy. Onuchukwu says the Buhari government has in the past two fiscal years “failed to religiously implement” its budgets. “I am saying this because some projects keep reappearing in the budget every year. We have seen the Ogoni clean-up reappear. The issue is not to put down figures and projects on paper; the issue is to ensure that those figures are implemented.”
The 2017 budget also did poorly in the area of revenue. The president says collections were 14 per cent below target as of September 2017, largely due to shortfall in non-oil revenues. But a key revenue shortfall was witnessed in the independent revenues, where only N155.14 billion was remitted by the federal government’s revenue generation agencies as of September 2017, as against the projected prorated sum of N605.87 billion. This represents a staggering 74 per cent shortfall.
The 2017 budget was presented by the president on December 14, 2016, passed by the National Assembly in May 2017, and assented to by Vice President Yemi Osinbajo – then acting president – on June 12, 2017. The 2016 budget was presented December 22, 2015, passed on March 23, 2016, and signed into law by Buhari on May 6, 2016.
Hurdle “Regrettably, the late passage of the 2017 budget has significantly constrained budget implementation,” the president says. “This year, we have worked very hard to achieve an earlier submission of the Medium-term Expenditure Framework and Fiscal Strategy Paper, and the 2018 Appropriation Bill. Our efforts were to avail the National Assembly with sufficient time to perform its important duty of passing the Appropriation Bill into law, hopefully by the 1st of January, 2018. It is in this spirit that I solicit the cooperation of the legislature in our efforts to return to a more predictable budget cycle that runs from January to December.”
Chairman of Senate Committee on Finance, John Enoh, says the early presentation of the 2018 budget “is an indication that we have learnt from the past and we are making progress.”
The Finance Act and Fiscal Responsibility Act require all MDAs to submit their budgets to the Federal Ministry of Finance by the end of the third quarter to facilitate the presentation of the budget to the National Assembly by October. Tuesday’s budget presentation is the closest to that provision the country has witnessed in several years. And it is also the first time in many years that the budget would be presented when the legislature has yet to debate and decide on the MTEF and FSP.
On the face of it, the National Assembly has about two months to work on the budget as well as the MTEF and FSP before the end of the year. But in actual fact, there are only about 21 legislative days between November 7, when the budget was presented, and the Yuletide break of the National Assembly in December.
The National Assembly would have to work to tight deadlines to be able to pass the budget by December.
Enoh said on Tuesday,“In the next couple of days there is going to be a schedule that would be agreed by the House and the Senate that would set time lines, which would end with having to pass the budget before we go on Christmas break.”
Nigerians will be hoping that the legislators would do their utmost to deliver the 2018 budget in good time.
Debt Burden But many still doubt if the “Budget of Consolidation” would deliver the economic turnaround that the country badly needs, given some obvious limitations.
The budget contains a debt service allocation of N2.014 trillion. A recent report by the International Monetary Fund put Nigeria’s debt-service-to-revenue ratio at a whopping 66 per cent. This is a very unhealthy situation for economic growth, but Buhari has said, “We are closely monitoring our debt service to revenue ratio.”
The president plans to address the debt issue through an aggressive non-oil revenuegeneration drive and restructuring of the existing debt portfolio, which comprises about 79 per cent domestic debt. The government says its strategy in the medium term is to reduce the proportion of the domestic debt to 60 per cent by the end of 2019 and increase external debt, which attracts relatively lower interest rate, to 40 per cent.
Chief Executive Officer of Cowrie Assets Limited, Johnson Chukwu, says,“The amount earmarked for debt servicing is most expected. In the first instance, government’s debt profile has ballooned. Debt servicing is a compulsory obligation, and we must be mindful that government has borrowed at exorbitant rate.
“The consolation there is that government is planning to substitute some of the local debt with foreign debt, which is at a more favourable price and they have set a repayment timeline of 2019, which I think is still fine.
“What we have is better than that of last year where borrowing was higher that capital vote, which means part of the borrowing was spent on both recurrent and capital expenditure. This time around capital budget is higher that borrowing, which translates to mean part of the capital budget will be funded through government revenue.”
Chukwu, however, says, “Government must work hard and ensure that it achieves its revenue budget, particularly the non-oil revenue target.”
Director, Corporate Finance, BGL Capital, Olufemi Ademola, also believes the debt service allocation in the 2018 budget is not unexpected, considering the obligations to the creditors. But Ademola says, “We need to be more transparent. If we look at what was spent on budget servicing last year, we may end up not spending the N2.014trillion that was budgeted for debt servicing in the 2018 proposed budget.”
But Research Analyst at the Nigeria Economic Summit Group, Totimi Oyelere, says, “The increase in debt service from N1.8 trillion in 2017 to N2 trillion in 2018, together with the upward movement in the debt stock, is worrisome. As at June, public debt totalled N19.6 trillion and aggressive borrowings have taken place between June and now, which means, our debt stock must have crossed N20 trillion line. The need to reflate the economy will continue to occasion borrowings since revenue is constrained. However, there is need for a concerted effort to borrow cheaply in order to reduce the deadweight on public value. Debts or borrowings come with deadweight but this cost can be reduced by going for cheap fund and exploring concessionary loans against full blown commercial fund.”
The overwhelming opinion among Nigerians seems to be that borrowing is not a bad idea for a growing economy like Nigeria’s, but the problem is what the loans are used for and the high percentage of national revenues used to service debts because of the high borrowing cost.
While Nigeria uses over 60 per cent of its revenues to service debt, the United States government, which is one of the biggest borrowers in the world, spends only about eight per cent of its revenues to service its debt.
Infrastructure Financing There have been suggestions that the government should involve the private sector in the funding of capital projects as a way of reducing the debt burden.
Ademola believes the money needed for infrastructure does not have to be provided by government alone; the private sector should be encouraged to come in through different counterpart funding instruments.
Looking at the trend in the past few years, Oyelere doubts the capacity of the government to fully implement the capital component of the 2018 budget. He says, “To have a better performance in 2018, we must focus on the activities of the MDAs and give them technical support and skills where necessary. This is the only way to accelerate CAPEX performance and create multiple tangible public goods/values.”
Loopholes In addition to aggressive tax drive, observers believe the federal government also needs to look seriously into the activities of its revenue generation agencies. Many of the agencies have been accused of failing to make their obligatory remittances to the Federation Account. Such failures contributed hugely to the revenue shortfalls of the 2017 budget. The announcement in September by the Joint Admissions and Matriculation Board that it was going to remit N7.8 billion to the government was an eye-opening revelation about the level of impropriety in the federal government parastatal, which had cumulatively remitted only N51 million over the last decades.
Senior Special Assistant to the President on National Assembly Matters (Senate), Senator Ita Enang, says, “Nigeria may not need to borrow if the agencies of government that bring revenue were making this revenue available to government. Some of these agencies get richer and behave as if they were a government themselves.”
Enang says, “What we need to do this year is an aggressive pursuit of the agencies.”
Nigeria needs a timely passage of the 2018 budget as well as an effective funding strategy to maximise the benefits of the financial plan.
“The president and the executive have done their bit; they have given us the budget. Now the legislature should take it up and let’s have a good Christmas present so that we can have a happy new year,” says investment banker Tilewa Adebajo. ”If we can achieve this, the signal that we are going to send to not only Nigerian businessmen but also international business people will be a very strong one, that we’ve got our act together and we are ready to roll.”