Is 2018 budget from same template for slow death? -By Henry Boyo

Henry Boyo

Nigerians habitually look forward to the budget process with much expectation that “things” will become “better”, once the annual budget is passed and duly implemented.

Regrettably, however, Nigeria’s fiscal plans do not become law until well into each accounting year. Consequently, comprehensive implementation of capital projects, within the budget year, becomes a serious challenge, and ultimately, projects may be abandoned, while funds allocated may also become difficult to account for. However, the question is, can the 2018 budget redeem Nigeria’s economy?

Hereafter, some salient aspects of the 2018 Appropriation Bill will be addressed in the following interview format:

In what way is the 2018 budget different from earlier fiscal plans that failed to stimulate inclusive growth?

The 2018 Appropriation Bill is, nominally, Nigeria’s highest ever annual fiscal plan. In real value terms, however, the N8.66tn budget may not be worth more than the 2011 budget of N4.48tn when naira was N150=$1.

Nonetheless, apart from size, the 2018 budget structure is actually the standard template adopted for decades. For example, despite reports of copious house cleaning and the benefit of over N20bn monthly savings from deletion of “ghost” salaries and other, allegedly, plugged revenue leakages, and reported refunds and seizures of stolen public funds, and adoption of the Treasury Single Account, recurrent consumption still, inappropriately, accounts for about 70 per cent of total annual expenditure.

Furthermore, the 2018 budget is, also, similarly predicated on deficit financing. Thus, in the absence of savings, government will continue to borrow, so that it can spend more than its actual earnings. Similarly, the 2018 Appropriate Bill is inexplicably also, silent on the often unbudgeted and unauthorised allocations to subsidise petrol price of N142/litre.

Although the 2018 appropriation bill was presented marginally earlier this year, it will nonetheless still fail to align and synchronise capital budget implementation, with the institutionalised January- December fiscal year. Sadly, with the possibility of up to four months unforced delay in budget passage, capital budget implementation will also become hurriedly compressed into less than nine months, to invariably, jeopardise accountability in the ultimate use of funds, and in project quality. For example, regrettably, by November 2017, only N450bn has so far been released out of the N2.2tn projected capital budget, and this does not demonstrate commitment to infrastructure enhancement.

Shouldn’t the highest ever budget of N8.66tn for 2018 inspire hope that the economy will be well-funded and social welfare should improve?

Unfortunately, there is the popular misconception that bigger budgets should translate into better chances of poverty reduction. But in reality, this has not been so. Clearly, the incremental budget process has steadily bloated annual budgets, from less than N2tn in 2008 to N7.28tn in 2017, with, unfortunately, no meaningful positive social impact on most Nigerians. Besides, in real terms, the 2011 budget of N4.48tn (when naira was N150 =$1) is probably more, in real value, than the much higher N8.66tn in 2018, with $1=N305-60. So, we must not be fooled by quantum leaps in budget spending, as this is inevitable, if inflation remains in higher single digits, while the Central Bank of Nigeria also continues to bet against its own currency, with its regular auctions of dollars against naira.

In view of the much reduced export income from crude oil, isn’t it expedient that government should borrow heavily to fund the budget deficit?

Yes, you borrow, if you can, when it is expedient, but you must responsibly hesitate to increase your indebtedness, if you already require up to 50 per cent of your total actual income to service existing debts. Any advice to step up borrowing in such circumstances should be seen as enemy action, particularly when there is barely any tangible impact from the application of earlier loans. Expectedly, the N1.699tn projected 2018 deficit will propel an already oppressive national debt, beyond $70bn to further compel larger allocations of scarce revenue for debt service in later years. Ultimately, Nigeria will be locked into more unsustainable borrowing, to service increasing debt obligations every year.

The non-availability of cheaper funds locally seems to have encouraged Mr. President’s preference for a 60 per cent shift to foreign loans. However, in addition to the current bid to borrow $3bn, will government still borrow more foreign loans to fund the 2018 budget?

The Minister of Finance, Kemi Adeosun, has also clearly expressed preference for foreign loans, because she believes they cost lower with rates around seven per cent. However, it would probably be more responsible for the minister to carefully interrogate why the cost of funds remain in higher double digits in her own country, so as to also bring Nigeria’s borrowings in line with best practice rates, where responsible governments, generally pay well below two per cent on their loans.

Ironically, the minister has suggested that we could even save up to (N91.65bn) from the present loan request for $3bn before parliament! In reality, foreign loans, over which government has no control, can ultimately expose us to forcible manipulation by economic imperialists who will, usually, demand a double pound of flesh. Besides, Nigerians should also ask for a sensible explanation why government borrows dollars externally at seven per cent when our own CBN sits comfortably on billions of dollars, which it auctions to banks and liberally allocates to the BDCs, while the apex bank compulsively, simultaneously, borrows to mop and sterilise excess naira liquidity from the market, with inappropriately high interest rates, even when the productive private sector is clearly denied access to cheaper funds to expand production and provide more jobs.

Nigerians should be concerned that if naira rate tumbled from below N100 to N305 since 1998, a naira rate beyond N1000/$1 is clearly also feasible in the near future, particularly if the systemic perennial challenge of surplus naira liquidity continues to be compounded with the CBN’s unilateral dollar auctions.

How do you rate some of the sectoral allocations? It seems power, works and housing ministry has the largest share of N555.88bn.

I have long given up using the size of sectoral allocations as an index of development expectations, because when hundreds of billions are reported to be allocated annually to various MDAs, you still never see the difference that the bigger allocations make! However, the sum of N555.88bn (about $1.5bn) for Housing, Works and Power is clearly inadequate for these three critical sectors. For example, power alone, according to sectoral experts, requires over $100bn to stabilise supply. Invariably, government’s capital spending will remain marginal, relative to the expanded funding requirements in major sectors like aviation, shipping, railways, refineries, etc.

The truth is that it is private sector businesses that actually drive successful economies. For this reason, availability of funds for private sector investments is, invariably, infinitely elastic, if the right government policies prevail. Consequently, it is rather inexplicable that government does not appear fully committed to concessioning as a way of remediating our infrastructural deficit, without the unnecessary, unproductive, and ultimately oppressive accumulation of an unsustainable debt burden. Furthermore, despite the recognition of the driving force of quality education, the 2018 budget shows a clear disregard of UNESCO’s recommendation for allocations for education should exceed 26 per cent of total expenditure. Regrettably, in 2018, only seven per cent has been allocated to education.

So, what’s in the 2018 budget for the common man and for industrialists?

Well, a significant reduction on inflation rate would be the most welcome simultaneous gift to millions of Nigerians. Consequently, the 12.4 per cent inflation target for 2018 is certainly out of place. Ironically, however, the projected 30 per cent expansion of budget spending will unfortunately only fuel the inflation rate to deepen poverty and constrain inclusive economic growth in 2018.

Furthermore, since lending rate is a function of the rate of inflation, consequently, if inflation rate remains in double digit, cheaper cost of funds, below 10 per cent, can never materialise for the productive sector to grow.