Rolling out his 2018 national spending plan, President Muhammadu Buhari sounded upbeat, promising that the Budget of Consolidation would build on current successes and return the country to the path of growth. The N8.61 trillion proposals, though lofty in goals, however, have some inherent weaknesses that will require financial dexterity to surmount and deliver on the promise of stimulating steady economic expansion. Success will depend on the government’s ability to meet and exceed revenue targets, manage potential disruptions to the budget anchors and faithfully implement capital and debt servicing obligations.
At N8.6 trillion, the budget is Nigeria’s highest ever, 16 per cent larger than the N7.44 trillion of fiscal 2017 and according to the Budget and National Planning Minister, Udoma Udo Udoma, seeks to consolidate on the reflationary policies of the previous two years and deliver on the Economic Recovery and Growth Plan 2018-2020.
With N2.65 trillion, representing 30.8 per cent of the total expenditure, earmarked for capital projects, the administration signposts its commitment to gradual increase in infrastructure spending, which has been dismal over the years, but is still too little to cheer given our dire infrastructure deficit, put at $300 billion by the African Development Bank. Total expected revenue of N6.6 trillion is also a record and 30 per cent higher than the 2017 target; N4.16 trillion or 63 per cent is expected from non-oil sources as the government seeks to break the over-dependence on oil and gas receipts, from which N2.44 trillion or 37 per cent, is projected to flow in. Non-oil revenue projection is an impressive 44.6 per cent improvement on the projected 2017 figure.
We, however, see some drawbacks: for instance, deficit at N2 trillion translates to more debt as it will be financed by new borrowings of at least N1.69 trillion from external and internal sources, in addition to the worrisome loans used to finance shortfalls in Budget 2017. PwC, the global consultancy, fears that the deficit may be much higher given the country’s poor record in realising its revenue targets, necessitating even higher borrowing that could lift total national debt stock from N17.6 trillion to N20.9 trillion.
Some of the budget assumptions also give cause for anxiety, though some commentators expect them to hold. An average oil price assumption of $45 per barrel looks good following the price rally of the past months that saw oil selling at $61 and above for the first time since 2014. However, experts have forecast an average of $45-55pb, while a more pessimistic Goldman Sachs sees a $42pb average in 2018. More troubling is the assumed 2.3 million per day oil production target: despite a waiver on production caps by OPEC and a ceasefire in the latter half of this year by militants in the Niger Delta region that halted vandalism and sabotage of oil production and delivery activities, crude production averaged 1.6m-1.8m bpd till July and only reached 2.2m bpd recently, according to Maikanti Baru, group managing director of the Nigerian National Petroleum Corporation. With the recent threat by Niger Delta militants to resume a campaign of sabotage, government could struggle to meet this target. An exchange rate of N305 to US$1 will also depend on stable oil prices and success in diversifying external revenues. The current N302 to US$1 is maintained by regular interventions by the Central Bank of Nigeria, which experts insist, is unsustainable as it depletes foreign reserves and distorts the market.
To realise its objectives, the government must engage stakeholders in the Niger Delta region as any disruption of oil production will surely upturn the budget. This is especially so as receipts from non-oil sources are predicated on the ability of agencies to meet their targets. The Federal Inland Revenue Service, Nigeria Customs Service, the Treasury Single Account platform, among others, have serially been unable to do so. Government needs to tidy up, block all revenue leakages so that agencies like NIMASA, NPA, NCC and others will have specific targets, instead of just accepting whatever they choose to remit. Debt servicing at N2.01 trillion or 23.34 per cent of the budget, is too high, suggesting that we look for more creative ways to raise revenues.
The government can realise much more than the N306 billion it targets from asset sales if only Buhari will sign on to massive privatisation of state-owned commercial enterprises, instead of the tentative concessions this government prefers. Selling the four refineries, all oil and gas retail assets, Ajaokuta Steel company and concessioning airports in transparent, targeted sales are low hanging fruits that would not only bring in much-needed cash, but also the money saved from funding them would be available for infrastructure and social services and enable foreign direct investment. The projected GDP growth of 3.5 per cent for 2018 is overly optimistic, viewed against the IMF’s downgrade of its earlier forecast of 2.3 per cent to 1.9 per cent and the reality of third quarter 2017 growth of 0.8 per cent and after five consecutive quarters of negative growth till Q2 2017.
Too often, politics gets in the way of economic decisions in Nigeria: Buhari should overcome parochial intrigues and accord the Lagos-Ibadan-Benin, Apapa-Oshodi, East-West roads, Second Niger Bridge and Murtala Muhammed International Airport road the urgency they deserve as vital economic recovery projects until we return to a comfortable growth zone. We need to work harder to raise funding for health, education and housing.
Implementation, the bane of Nigeria’s budgeting, needs to be overcome. No capital budget has been fully implemented since 1999, according to civil rights groups, while the government borrows to meet recurrent spending that at N3.49 trillion in 2018, is still too high. Efforts should be redoubled to execute all capital projects and reduce overheads, service domestic debts and doggedly prosecute the war on corruption.
