GIVEN the bleak economic outlook in the face of dwindling oil prices and an increasingly distressed performance, the Federal Government was expected to craft a budget for ‘troubled times’ and reduce the suffering of Nigerians, whom it promised to protect after winning a landmark election.But as President Muhammad Buhari, recently, presented a N6.08trn budget for the 2016 fiscal year, with capital expenditure taking N1.8trn—which is 30 per cent of the bulk and sports a mishmash of social spending— experts believe that the country would be running on an ambitious budget, which may be unrealistic going by its assumptions.
According to the proposal, N396b would be spent on education, making it the largest sectoral allocation. The health sector would get N296b, while defence has N294b.
President Buhari, as has been the rhetoric in recent years, said the budget would be characterised by inclusive growth, affirming his commitment to economic diversification.
President Buhari, as has been the rhetoric in recent years, said the budget would be characterised by inclusive growth, affirming his commitment to economic diversification.
He said farming and mining would be given special focus, noting, “I promise the 2016 budget would address the problems. We are here to serve Nigeria and indeed Nigerians will get the services they have longed for.”
The President said: “Our 2016 borrowings will be principally directed to fund our capital projects. Furthermore, the sum of N113b will be set aside for a Sinking Fund towards the retirement of maturing loans; while N1.36trn has been provided for foreign and domestic debt service. This calls for prudent management on our part, both of the debt portfolio and the deployment of our hard earned foreign exchange earnings.
“In fulfillment of our promise to run a lean government, we have proposed a nine per cent reduction in non-debt recurrent expenditure, from N2.59trn in the 2015 budget to N2.35trn in 2016. Furthermore, we have budgeted N300b for Special Intervention Programs, which takes the total amount for non-debt recurrent expenditure to N2.65trn.”
“In fulfillment of our promise to run a lean government, we have proposed a nine per cent reduction in non-debt recurrent expenditure, from N2.59trn in the 2015 budget to N2.35trn in 2016. Furthermore, we have budgeted N300b for Special Intervention Programs, which takes the total amount for non-debt recurrent expenditure to N2.65trn.”
But experts have punctured the ambitious assumptions of the budget, especially the oil benchmark, projected volume, and the N199 to 1$ exchange rate peg, as well as, Nigeria’s ability to source funds for the deficit in the budget, given that the country has been delisted from emerging markets bond index globally.
The Director General (DG) of the Lagos Chamber of Commerce and Industry (LCCI), Muda Yusuf, described the debt-servicing component of N1.3trn as high, but hailed the increase in capital expenditure.
He said the prioritisation of spending in favour of capital projects is welcome and commendable, adding that it would mean better focus on the current high and disturbing deficit in the nation’s infrastructure.
“The debt service provision of N1.3trn is quite high. The provision for capital budget is N1.8trn, while the sum of N1.3trn is earmarked for debt service. This is 72 per cent of the capital budget allocation. We need to worry about the amount of resources we are committing to debt service, especially when there is very little to show for these debts. Of course, outstanding obligations must be settled, but going forward, there is need to review our debt management strategy to reduce the burden of debt service on the economy,” he said.
“The debt service provision of N1.3trn is quite high. The provision for capital budget is N1.8trn, while the sum of N1.3trn is earmarked for debt service. This is 72 per cent of the capital budget allocation. We need to worry about the amount of resources we are committing to debt service, especially when there is very little to show for these debts. Of course, outstanding obligations must be settled, but going forward, there is need to review our debt management strategy to reduce the burden of debt service on the economy,” he said.
He said that the exchange rate assumption of N197 to the dollar should be reviewed because “it is not in tune with the current realities of the foreign exchange market,” noting that it would understate the revenue accruable from the foreign exchange surplus from the Central Bank of Nigeria (CBN) to the federation account.
“The promise by the President that the current forex policies and exchange controls of the CBN will be reviewed is laudable. Although such review was long overdue, having regard to the dislocations that the exchange controls has caused many investors, foreign and domestic,” he added.
“The promise by the President that the current forex policies and exchange controls of the CBN will be reviewed is laudable. Although such review was long overdue, having regard to the dislocations that the exchange controls has caused many investors, foreign and domestic,” he added.
For President of Chartered Institute of Bankers of Nigeria (CIBN), Mrs. Adeola Osibogun, the budget presents an opportunity to tackle unemployment, if there is honesty of purpose.
Commenting on criticism for borrowings, she said, “I don’t know of any country that does not borrow to finance part of their budget. If our country needs money to execute capital projects, I don’t think there is any cause for alarm, as long as we have enough time to repay the debt, and usually, the repayment is spread out for a long time. If the corruption in the system were minimized greatly, then the money meant for a particular project would be invested in the project.”
She continued, “The budget is very ambitious, but at the same time, we need a lot of capital investment in infrastructure. But if there is honesty of purpose, then I don’t see any reason to worry. For a long time, funds earmarked for certain projects were not expended for such purposes, and that is why there has been decay in our infrastructure. So, we need a bold step to get ourselves out of the woods. I believe that is what this government is trying to address.”
She said the plan to tackle unemployment with the budget is most welcome, stressing, “The most important thing is the employment that funds for capital budget would generate. This is because, once funds have been slated for capital projects; we have to employ people that have to work on the resultant projects. So, youths would be employed.
“If we could recall, even in the United States, when the country went into recession, they pumped a lot of money into the system to get themselves out of the mess through employment. I believe this government wants to make sure that the people that are unemployed are gainfully employed.”
“If we could recall, even in the United States, when the country went into recession, they pumped a lot of money into the system to get themselves out of the mess through employment. I believe this government wants to make sure that the people that are unemployed are gainfully employed.”
Policy Analyst and Chief Executive Officer (CEO), RTC Advisory Services Ltd, Opeyemi Agbaje says the proposal recognises the need for fiscal stimulus and that the attempt to expand spending to counteract the slide towards a recession is well grounded in economics.
He said that the biggest challenge with the budget is that it has a huge deficit of N2.2tn, even when current policies are not supportive of financing a deficit.
According to him, “As part of that principle, there is a N2.2tn deficit, which may be larger, depending on what oil prices are. So, that budget was envisaged at $38 per barrel and as long as oil prices are lower than that figure, the deficit would be bigger, and if the prices recover, the deficit would be smaller.
“Roughly half of the deficit would be financed from foreign bodies and another half would come from domestic borrowing. You have to make yourself attractive to foreign creditors if you want them to finance N1trn deficit in your budget. Foreign creditors have been chased away through delisting by JP Morgan and Barclays. Foreign bond investors have abandoned Nigeria; the government has essentially expelled them. So, where are we going to find the foreign investors fund the N1trn deficit? That would be a significant challenge.”
“Roughly half of the deficit would be financed from foreign bodies and another half would come from domestic borrowing. You have to make yourself attractive to foreign creditors if you want them to finance N1trn deficit in your budget. Foreign creditors have been chased away through delisting by JP Morgan and Barclays. Foreign bond investors have abandoned Nigeria; the government has essentially expelled them. So, where are we going to find the foreign investors fund the N1trn deficit? That would be a significant challenge.”
Noting that there are also challenges with domestic borrowing, he said government would have to fix monetary policies so as to allow room for the financial sector to recover from the shocks of the TSA and stifling Forex policy.
According to him, “Government has imposed some restrictions on the financial sector through the implementation of the Treasury Single Account (TSA). Also, the stock market is performing badly, therefore pension funds and others are constrained. And yet, we want to raise N1trn from the domestic market. The main incongruity in the budget is that it relies largely on deficit financing, but the policy environment is not supportive of that. If they want the budget to be real rather than artificial, they would have to fix policies, especially in relation to exchange rates and financial sector conditions.”
GUARDIAN NIGERIA
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