‘Nigeria’s borrowing in 2018 budget must be self-liquidating’
Dr. Uche Uwaleke is a financial consultant and the current Head, Department of Banking and Finance at the Nasarawa State University Keffi. In this exclusive interview with he x-rays the 2018 budget and harps on the need for profitable domestic borrowing a
What is your take on capital expenditure that is almost the same as the projected revenue of N2.4trillion?
The capital expenditure budget for 2018 if you notice is an improvement over that of 2017. If you add the capital component of the statutory transfer, you have about 30.8% allocation to capital expenditure and that is in line with the Economic and Growth Recovery Plan (ERGP) of the federal government. This gives priority to capital expenditure. As such we are beginning to see improvement in the allocation for capital expenditure. Although implementation in the past was a problem but let it be recognized that capital expenditure is what is needed to drive economic growth in this economy.
What do you make of recurrent expenditure still higher than capital expenditure by N1.06 trillion?
The challenge Nigeria has with recurrent spending is primarily because of the blotted size of the civil service, if you look at the component of the recurrent spending, majority is personnel spending. Personnel cost in salaries and wages and four ministries alone account for over 70% of that which are Interior, Defence, Education and Health with N500 billion, N400 billion, N400 billion and N200 billion respectively.
We have found ourselves in this situation and it can’t be easily corrected because these ministries employ people that render critical services. Therefore, the only way that meaningful reduction can be achieved in recurrent spending is to downsize workers in the civil service which is nearly impossible because laying off people in this economic era is not recommended in my view.
However, government had made effort to cut recurrent spending and have been saving about N20 billion every month on account of some of the policies it has introduced to remove ghost workers from payroll which is through the Integrated Payroll and Personal Information system (IPPIS) that has gone a long way in chasing ghost workers.
Also government can look into overheads which can refer to as indirect expenses to reduce recurrent expenditure which is incurred by its MDAs. The efficiency unit under the Ministry of Finance is doing well to check overhead spending but it needs to do more. I think why recurrent expenditure went up is because of the fact that government said it wants to clear pension areas of retirees and government has plans to also employ people into the paramilitary to improve security.
What is the implication of rolling over 60% of 2017 budget into 2018?
In 2017 budget, about N2.19 trillion was voted for capital spending. But as we speak just about 450 billion has been released which is not up to 20%. The reason is because 2017 budget was passed late. If you recall the then acting president didn’t sign it till June and now to make matters worse, is the procurement process that is very lengthy in Nigeria, it takes not less than six months to materialize. So the long procurement process and the fact that the budget was not passed in time contributed to the poor implementation of the capital project.
Another major reason why the capital expenditure was not implemented significantly has to do with shortfall of revenue in government projection. Government projected N600 billion from independent revenue that will be remitted from MDAs and what they got was less than N200 billion and that is why the president was harping on the need for MDAs to remit revenue as in the case of JAMB which recently remitted N7 billion but in the past had never remitted up to N50million which now served as an eye opener for the government and government has to focus in that direction in 2018. As such that largely accounted for the poor implementation of the 2017 budget. Therefore, if the budget can be implemented by January or February, you can be sure that the success rate for 2018 will be much better that what we had in 2017.
How do you think the 2018 budget can be quickly passed for better implementation?
If the budget are passed and implemented in time, there is likelihood that the success rate is higher. The National Assembly has a duty to interrogate the revenue and expenditure estimates. It also has a duty to consider them and from research, it takes an average of three months for the National Assembly to conclude on the budget, so if the executive arm doesn’t send in good time, it will affect the passage.
The President said he is confident it will be passed in January but I doubt it and will be a miracle if it happens, but by Daily Trust on Sunday, In fact, tax alone can do a lot for us as a country. Of course, the ratio of tax to GDP is very low in Nigeria at 6% and the focus should be increasing tax revenue from the tax base by bringing in more people into the tax system and ensuring people that have not been paying tax start paying February it should be ready. Between now and December the National Assembly have 22 days to work on the budget and don’t forget it has to go through committees and MDAs will be invited to defend their budget which will consume time. I don’t see them passing it in January but if it happens it is a good development.
What can you say about a great proportion of the budget being anchored on debt servicing?
As a developing country, you can’t do without budget deficit where your projected expenditure is higher than projected revenue. Deficit will always be there especially given your huge infrastructure deficit and whenever you have deficit, the question of financing comes in. In Nigeria and many other developing countries, deficit is financed by borrowing and part of why the debt servicing has been a burden is because our borrowing has been domestic and borrowing from within has become expensive for the government at 16% to 18% and to service these debts and that is why government is looking at foreign loans which are cheaper than local debts. And use the loans to settle domestic debts to reduce the debts service burden which I support.
However, what is important is that all borrowing must go to capital projects, not just any capital project but critical capital projects that are self-liquidating which means proceeds of the project are used to repay the loan. The Public Private Partnership of government is also commendable because they can’t do it alone and we need private capital which will require counterpart funding which government will be ready to do it.
It is commendable that the core capital projects were highlighted in the 2018 budget which include the Mambilla power project, road infrastructure, rail, and etc are what we need to drive the economy to the part of sustainable growth.
For the first time in the history of Nigeria, non-oil revenue projection hits N4.17 trillion. Of what benefit can that be?
That is welcomed and it is in line with ERGP which signals that gradual shift from oil. As you know the oil sector is volatile and you can’t bank on it. In fact, tax alone can do a lot for us as a country. Of course, the ratio of tax to GDP is very low in Nigeria at 6% and the focus should be increasing tax revenue from the tax base by bringing in more people into the tax system and ensuring people that have not been paying tax start paying.
The Federal Inland Revenue Service Voluntary Asset and Income Declaration Scheme (VAIDS) is laudable which is ensuring that a lot of people come into the tax net. Remember that a substantial part of that non-oil revenue apart from income tax, value added tax, customs duties, the rest is government independent revenue which I mentioned earlier. So government has to focus on that and ensure that MDAs generate revenue and pay them into FGs account.
Do you think the 2018 budget can project the GDP higher than 0.55%?
I am optimistic that the 2018 budget will grow the economy, although it may not grow the economy as high as 3.5% as projected by the federal government but the way budget has been couched if implemented will no doubt grow this economy beyond where we are. Why Nigeria’n have not felt the impact of the exit from recession is probably because the growth rate is still small and fragile at 0.55% in Q2 and partly because population growth rate is at higher than GDP rate. Population growth rate, at 2.7-3% when GDP is growing at a lower rates so as long as GDP is not higher than population growth rate, the impact may not be heavily felt. Also when emphasis is laid on locally made products, jobs are created and that way growth will be inclusive.
Until there is growth that has jobs, people will always complain, but when the growth is inclusive, productivity will be high and inflation will come down which will have positive effects on exchange rates.