The prospects for achieving a strong economic growth this year are brightened by the improving outlook for the global economy. IMF projects global economic growth to keep accelerating from 3.0% last year to 3.7% in 2014 and further to 3.9% in 2015. Growing consumption spending in the advanced economies and improving exports in emerging markets are the driving forces of the global economic recovery. Both have favourable effects on Nigeria’s oil and non-oil exports and therefore government’s revenue performance in 2014.
The favourable outlook provides yet a rare opportunity for government to successfully implement the 2014 budget, which is planned to create jobs and drive economic growth. Economic growth remains quite strong at the estimated 6.89% in 2013, which is expected to accelerate to 7.7% in 2014. The strong economic growth already gives us the essential platform upon which we can now add a job creation content.
To what extent we can go on employment creation depends on the quality of government expenditure. The low job content of previous budgets is a reflection of the predominance of recurrent expenditure. Job creation is a function of enhanced capital spending by stimulating demand and consumption in the domestic economy. In order to realise the objective of job creation through the 2014 budget therefore, government needs to effect a change in its expenditure structure.
The necessary change in government expenditure structure has not happened, instead the faulty structure is expected to intensify in 2014. Government has pursued the policy of fiscal consolidation in the past three years with the intension of reducing the share of recurrent spending and improving that of capital expenditure. Some success was achieved in the past two years but in place of further success expected in 2014, the gains have been reversed.
The share of recurrent spending has shot up from 67.5% in 2013 to 74% in 2014. The expectation is that it may rise even further when pension arrears are incorporated in the subsequent budgets. It has therefore become a matter of serious concern how we will be able to create jobs with 74% of spending in recurrent votes when we couldn’t do so with lower ratios.
The jobless situation in the country has become very critical, as the last immigration recruitment exercise has confirmed. It has become imperative for government to take urgent steps to reverse its expenditure profile that is hindering capital expenditure and limiting job opportunities. The finance minister Dr. Ngozi Okonjo-Iweala said in her 2014 budget presentation that further fiscal consolidation isn’t going to be possible unless the National Assembly amends the laws that will empower the executive to prune redundant and duplicative government agencies.
We expect that the National Assembly will appreciate the critical need for repealing the relevant laws to enable government sustain the fiscal consolidation move and build employment creating capacity in the economy. What the finance minister has said means that we are spending the funds needed for improving infrastructures in carrying government institutions that we can afford to shut down.
We are therefore carrying these wasteful institutions at the expense of jobs for the youth of our nation and adequate infrastructures for people and businesses. The outcome of the immigration recruitment exercise now reveals the true cost of carrying redundant government institutions: the lives of our youth that hold the promise for our future.
We call on the lawmakers to act now; it is already getting too late to change the structure of government spending from excessive consumption to capacity building for the future. Finance minister has also made this call in her budget speech by demanding a balance between the growing wage bill for the public sector and investing more of our resources in infrastructure projects. The ball is now right in the court of lawmakers. We don’t have to have more deaths of job seekers at recruitment centres to wake up to the urgent need to act.
While we are waiting on the lawmakers, the executive needs to put its own fiscal house in order. The expenditure cut that will enable us improve capital expenditure and create new jobs will not come from rationalising redundant agencies alone. Sustained revenue savings that will come from improved operating efficiency of MDAs are much more important than the one-off impact of closing redundant institutions. The call by finance minister in the 2014 budget that “we will therefore need to manage our domestic affairs prudently in the light of continued global uncertainty” is a life saving call to everyone in whose power it is to get our faulty expenditure structure right.
The cost of not acting now will be quite unbearable going forward. A situation where government revenue is continually failing to cover its expenses will intensify and that will take us deeper into debt. Growing debt in a situation of rising recurrent expenditure means that we may soon be borrowing to fund recurrent programmes.
Government will need to be quite cautious about new borrowings in view of rapidly growing debt service burden. Up to N712 billion or 19% of the total federal government revenue is proposed for debt servicing in 2014. Recurrent expenditure with debt servicing will claim 84% of government revenue this year.
Inclusive of statutory transfers, total recurrent spending will consume 94% of federal government revenue of N3.73 trillion in 2014. The proposed capital expenditure of N1.24 trillion will have to be funded with new debt. If the present expenditure structure is maintained, we may soon be voting nothing less than N1.0 trillion annually for debt servicing.
For us to build new productive capacity in the economy and create jobs, we need to change the flow of money from current consumption to productive activity. We have to rebuild broken down infrastructures and reduce the crowding out effect of government in the credit markets.
