Tuesday, December 20, 2016
How realistic is Buhari’s 2017 budget estimates?
On December 14, 2016, President Muhammadu Buhari presented financial estimates of N7.3tn to the National Assembly. The financial plan was labelled as the Budget of Recovery and Growth. It is based on a benchmark crude oil price of US$42.5 per barrel; an oil production estimate of 2.2 million barrels per day; and an average exchange rate of N305 to the US dollar. The N7.298tn budget is a nominal 20.4 per cent increase over the 2016 estimates. However, 30.7 per cent of this expenditure will be capital. The fiscal plan will result in a deficit of N2.36tn for 2017 which is about 2.18 per cent of the GDP. The deficit, according to government, will be financed mainly by borrowing, which is projected to be about N2.32tn. About 46 per cent of this borrowing, which translates to N1.067tn will be from external sources while, N1.254tn will be borrowed from the domestic market.
Last Thursday, a day after the budget proposal was presented to the National Assembly, I had the privilege of reviewing the financial proposals on Politics Nationwide, a programme of Radio Nigeria (Federal Radio Corporation of Nigeria) which holds every Tuesday and Thursday. To my own mind, the budget is a mixed grill of both positives and negatives. As the saying goes, there are two sides to every coin. Moreover, my training in development work makes it mandatory for me to always look at both sides of the coin. It is quite understandable that there are quite a lot of cynicisms about the budget and I quite subscribe to that. However, let me reel out a few things that thrill me about the budget.
I like the fact that Federal Government is walking the talk by emphasising the buy “Made-in-Nigeria and consume Made-in-Nigeria” philosophy. In paragraph nine of his speech, Buhari avowed as follows “…we will increasingly grow and process our own food; we will manufacture what we can and refine our own petroleum products. We will buy ‘Made-in-Nigeria’ goods. We will encourage garment manufacturing and Nigerian designers, tailors and fashion retailers. We will patronise local entrepreneurs. We will promote the manufacturing powerhouses in Aba, Calabar, Kaduna, Kano, Lagos, Nnewi, Onitsha, and Ota. From light manufacturing to cement production and petrochemicals, our objective is to make Nigeria a new manufacturing hub.” Given the scarcity of foreign exchange to import goods, our choices are limited and it is inspiring that government is looking inward for a solution to our economic woes.
What the President said in paragraph 17 of the same budget speech also resonates with me. In trying to fast-track project implementation and procurement processes, he said he would be issuing some Executive Orders to ensure the facilitation and speeding up of government procurements and approvals. These Executive Orders, the President said, would widen the scope of compliance with the Fiscal Responsibility Act by the Federal Government-owned entities and promote support for local content in the Ministries, Department and Agencies. In order to ease the business environment in Nigeria, the President said he had established the Presidential Enabling Business Council, chaired by the Vice President with a mandate to make doing business in Nigeria easier and more attractive. For those of us who are familiar with the country’s poor rating on the “Ease of Doing Business”, this is a laudable and welcome development if the main aim is achieved.
It is also commendable that as part of measures to resolve the lingering issue of liquidity in the power sector, the Federal Government has made provisions in the 2017 budget to clear its outstanding electricity bills. The Association of Nigerian Electricity Distributors had earlier in the year claimed that government establishments, including the military and security agencies alone, owed the Electricity Distribution Companies over N93bn. Payment of this gargantuan debt will definitely bring a fillip to the ailing power companies.
In paragraph 23 of the speech, the President also pledged to pay some of the debts owed local contractors. According to him, “One of such issues that the Federal Government is committed to dealing with frontally is the issue of its indebtedness to contractors and other third parties. We are at an advanced stage of collating and verifying these obligations, some of which go back 10 years, which we estimate at about N2tn. We will continue to negotiate a realistic and viable payment plan to ensure legitimate claims are settled.” Many domestic contractors have died or become terminally ill owing mainly to the non-payment of their entitlements many years after they had executed the contracts awarded them by the Federal Government. Many of these contractors who borrowed money at high interest rates from money deposit banks otherwise known as commercial banks have had their properties used as collaterals for the facilities confiscated by the banks when they could not repay the loans. Should these debts be settled, it will stimulate the national economy.
Paragraph 34 of the budget speech also caught my attention. According to the President, “Our efforts on cost containment have continued throughout the year. We have restricted travel costs, reduced board members’ sitting allowances, converted forfeited properties to Government offices to save on rent and eliminated thousands of ‘ghost’ workers. These, and many other cost reduction measures will lead to savings of close to N180bn per annum to be applied to critical areas including health, security and education.” I am also delighted at the jerking up of the budget for the judiciary from N70bn in 2016 to N100bn in 2017. That arm of government has been treated with disdain over the years through low budgetary provisions.
The President was on point when he observed that “Our Small and Medium scale businesses continue to face difficulties in accessing longer term and more affordable credit. To address this situation, a sum of N15bn has been provided for the recapitalisation of the Bank of Industry and the Bank of Agriculture. In addition, the Development Bank of Nigeria will soon start operations with US$1.3bn focused exclusively on Small and Medium-Sized Enterprises.” The 2017 budget retains the allocation of N500bn to the Special Intervention programme. This is praiseworthy given the sloppiness with which the social schemes have been implemented in 2016. For instance, only 200,000 out of the 500,0000 jobs promised through the N-Power Programme have been delivered, the school feeding programmes has yet to take off while the payment of N5,000 to the poorest of the poor has yet to also commence.
With all the aforesaid, will the 2017 be able to deliver on its aim of economic growth and recovery? I doubt. If wishes were horses, beggars will ride. All the aforesaid wish list will only impact positively on the lives of Nigerians when they are fully implemented. This budget proposal, just like in previous years, was submitted late to the National Assembly. The consideration and passage will only be done in the first quarter of next year. This is against the letters and spirit of the Fiscal Responsibility Act. Even as of the time of the budget presentation, the Medium Term Expenditure Framework and Fiscal Strategy Paper had yet to be passed by the legislature because of the many unrealistic assumptions made therein. Even the benchmark crude oil price of US$42.5 per barrel; an oil production estimate of 2.2 million barrels per day; and an average exchange rate of N305 to the US dollar seem very unrealistic. With the likely huge revenue shortfall in 2017, full implementation will be a serious challenge.
However, it is hoped that when legislative work begins in earnest on the budget, we shall not be treated again to the melodrama of 2016 when “padding” was the norm.