Nigeria’s 2018 Budget: The numbers don’t add up!

Nigeria’s 2018 Budget: The numbers don’t add up!

Thursday, November 9, 2017 8:15 am

Odilim Enwegbara

Odilim Enwegbara

There is only one way nations achieve economic growth. It is by restructuring and repositioning their economies for industrialization through intensifying horizontal and vertical economic growth activities.

Just like the last two budgets from previous governments did not prioritize social investment spending, economic diversification, agriculture, critical infrastructure spending, small business promotion and empowerment, real sector investment and growth as well as high job creation, this too is flawed upon arrival.

Without taking these difficult but right economic steps, we will never ever witness economic development driven by industrialization like today’s modern economies like South Africa and Egypt.

But for that to happen, this government should make some conscious efforts geared towards growing the capital portion of its budget. This it can do either by drastically reducing its current recurrent spending to free more revenues for capital spending or drastically increase its tax receipts.

Where these two are not possible, government should pursue borrowing purposefully for the development of the infrastructure which when it happens will reduce the cost of doing business in the country by increasing the country’s real sector firms’ competitiveness.

I’m always in support of borrowing, especially, external borrowing so long as the high debt profile is for investment. Unfortunately, borrowing has been intensified for the same wrong reasons previous governments were known for.

Even when the law states that government can never borrow either externally or domestically for recurrent (consumption) or for paying down the domestic debts, or go ahead borrowing without the full cost-benefit analysis and debt repayment plans, this government has gone ahead with such a dangerous borrowing spree.

Why our debt is a problem is because we are loading the economy with huge consumption debt. It is unfortunate that within the two years of the Buhari administration, Nigeria has borrowed for consumption more than we did the entire Jonathan’s 5 years and double more than Obasanjo’s 8years. As a result, the cost of debt service has escalated dangerously that we now borrow to service debt.

Can we point to any form of rigorous Debt Credibility and Sustainability Analysis, to warrant the current borrowings spree including the ones that have to prop up in the middle of a fiscal year? Where are the Debt Management Office’s justifications for the recent request to borrow externally to pay down on domestic debts? Within which law is this being allowed?

The danger of accumulating consumption debts is that it will overburden the economy to the extent of undermining all growth efforts and most dangerously keeping genuine private sector firms away from the economy. Already, that is already manifesting in Nigeria where debt service obligations at N2.014 trillion ($6.603bn) is only smaller to N2.428 trillion ($7.960bn) capital expenditure, and the real growth engine of the economy by mere N414 billion ($1.357bn).

Since the economy is not growing fast enough to absolve the huge debt service obligations, government is dangerously forced to go as far as borrowing not only for the usual consumption but for meeting its debt service obligations. So, we borrow to service earlier debts.

That is why the finance minister had to recently announce that government is suspending the implementation of the capital portion of the 2017 budget. This is happening at the wrong time, at such a time we are yet to fully exit recession, which requires government to be aggressively spending on infrastructure upgrading and expansion.

It should make any caring Nigeria to denounce what is going on in the economy. And that was what Mr Speaker, Yakubu Dogara pointed out after the presentation of the 2018/2019 appropriation bill by the President at the joint session of the two houses.

So, if the 2017 has been witnessing such a poor implementation, one would only imagine what would be the fate of the 2018 budget proposal given the bogus revenue projections and the over-bloated non-oil revenue projects?

Not only are the key economic growth assumptions in this budget presented by the President completely unreliable, also grossly over-bloated are its revenue projections, even more bloated than the 2017/2018 budget that has since run into implementation difficulties.

Take the so-called Customs’ revenue projections in the 2018/2019 budget estimate. My concern is that the revenue targets are simply not realistic particularly the anticipated revenue from the Customs at a time there are many import duty waivers, less importation of finished consumer goods, not to mention porous borders causing smuggling.

The only way Customs should get close to the set target, is if government should relax importation which will be a handful to the manufacturing sector or hiking import duties which will fuel more smuggling.

Let me not be misconstrued with regard to the size of the budget. It is not that the 2018/2019 budget is too big given the size of our economy, which even at N8.612 trillion ($28.24 billion) is still very small given the country’s $405 billion GDP, which is at about 6.97% budget-to-GDP ratio.

This is very small compared to countries like South Africa whose 2017/2018 is R1.56 trillion ($109.396bn) against $294.8bn GDP with 37.17% budget to GDP ratio. South Africa’s 2017/2018 at $109.396bn budget is higher than Nigeria’s 2017/2018 budget by a whopping sum of $81.16bn.

In terms of debt to GDP ratio, South Africa’s debt at $157.142 billion (R2.2 trillion) stands at 50.70% GDP ratio, has only $12.07bn (11.05%) of the budget to debt service while federal government of Nigeria’s debt at $60bn (N18.575tn) stands at 14% GDP debt ratio, has the whopping sum of $6.603bn (N2.014tn) 23.39% of the budget for debt service.

What this means is that unlike South Africa’s, Nigeria’s debt service is growing at geometric progression while its capital expenditure $7.960 (which is only higher than its debt service by $1.357bn) is growing at arithmetic progression.

In other words Nigeria’s debt service is growing much faster than the economy itself. Also, while South Africa’s tax receipts for the 2017/2018 budget is at 29.8% of the GDP (37.11% of budget), Nigeria’s non-oil receipts for the 2018/2019 budget projected at N4.165 trillion ($13.656) remains too small compared to South Africa’s $87.843bn tax receipts (29.8% OF GDP). Why shouldn’t that be the case if South Africa’s VAT alone is at 14% against Nigeria’s 5%?

Why the Nigeria’s tax receipts will always be much lower than South Africa’s is the result of the differences in their levels of economic development. Whereas the South Africa’s economy is a modern industrial economy which is driven by both vertical and horizontal economic growth activities, Nigeria’s mono economy has its economic growth activities solely driven by vertical economic activities with more multiplier and less trickle-down effects.

Understandably, South Africa is forced to aggressively invest in upgrading and expanding its critical infrastructure if it wants to further grow its economic activities horizontally since that will mean increasing its future tax receipts. In the case of Nigeria unfortunately, nothing is done to grow the economy horizontally since tax receipts are not the critical component of its annual budgets.

Given the fact that South Africa must always be growing its economy deficit spending at above 3% while in Nigeria where there’s no urgency to grow the economy so as to grow government’s tax receipts, keeping deficits at below 2%, is such an acceptable norm.

Increasing tax receipts of government should require government to promote horizontal economic growth activities which having both higher trickle-down effect and multiplier effect, besides creating more jobs and reducing import dependency will also increases tax revenues that government badly needs to invest in further growing of the economy.

While poor implementation of each year’s budget is carefully orchestrated so the delay in capital projects would mean more money available for big government, the full implementation of the budget is sacrosanct since it is an act of the law that should never be violated.

Big government being needed in over centralized economies like ours where public employments and appointments are ways of extending favors to friends and well-wishers as well as to members of the particular ethnic group in power, after all, government’s revenues come mostly from the country’s natural endowments rather than from the hard work of the people and from the real sector economy driven by entrepreneurs and risk takers.

From the recurrent expenditure (N3.494 trillion) vs capital expenditure (N2.428 trillion) figures of 2018 budget proposal against 2017 recurrent (N2.9 trillion) vs capital (N2.24 trillion) — that is, (N3.494 – N2.9 trillion = N351.9bn) against (N2.428 – N2.240 = N188 billion).

With recurrent growing by N351.9bn against capital’s N188bn, it is obvious that recurrent expenditure has been growing at geometric progression while capital expenditure grows at arithmetic progression, where the reverse ought to have been the case.

In other words, a growth focused budget should have had its recurrent expenditure to be the one growing at arithmetic sequence (if it should be growing at all), while its capital expenditure, which should be the real driver of the economy, ought to be growing faster — that is, at geometric progression.

For this reason, I will suggest that the current 3.0% fiscal deficit spending ceiling which is based on the country’s GDP ratio, be increased to minimum of 8.0% or we shall move our fiscal deficit from being based on GDP ratio to simply being based on the percentage of the budget of the fiscal year in question, which is the case in some modern economies, including our peer economies.

To avoid the re-occurrence of so called budget padding or original budget missing or not, I am advising that to ensure that the next year’s budget presentation maintains the credibility and transparency it deserves, after its presentation to the National Assembly by the President tomorrow, let the Appropriation Bill be posted on both the Presidency’s website to be called: www.fy2018/appropriationbill/ and on NASS’s website to be called: www.fy2018/appropriationbill/

And let upon passage by the NASS, the passed Appropriation Bill be posted on the National Assembly’s website as www.fy2018/appropriationbill/

When signed into law by the President (or by the veto power of the NASS) it should be posted on Presidency’s website as www.fy2018/; NASS as www.fy2018/; and Ministry of National Planning and Budget as: www.fy2019-2020/

This is needed in order to guarantee all Nigerians and other stakeholders such an unrestricted easy access to the details of government’s budgets, including their implementation plans.

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