With the economy on a downward spiral, President Muhammadu Buhari and his team are pinning hopes of recovery on the N7.3 trillion 2017 budget laid before the National Assembly a fortnight ago. Anchored on “positives” such as 30 per cent outlay on capital projects, a realistic exchange rate and higher projected revenue from non-oil sources, the budget is expected to stimulate a contracting economy and create jobs. But a closer scrutiny indicates that the government and parliament need to take a pruning knife to the document to deliver on that promise.
At first glance, the budget appears rosy. Total proposed spending at N7.3 trillion is the country’s highest; capital vote at N2.24 trillion is 30.7 per cent compared to N1.8 trillion or 27.2 per cent in 2016 and 15.05 per cent (or N690.58 billion) in 2015; the benchmark oil price of $42.5 per barrel is also more realistic, given current trends, and portends a rebuilding of the Excess Crude Account if price and production levels of 2.2 million barrels per day hold firm. When added to the projected increase in revenue from N3.86 trillion in 2016 to N4.94 trillion in 2017, and a plan to reduce the huge domestic debt of N2 trillion (Power, Works and Housing Minister, Babatunde Fashola, said N1 trillion is owed road contractors on 200 projects), the regime’s optimism is understandable. Buhari asserts that the budget is in furtherance of his Economic Recovery and Growth Strategy, which he claims “provides a clear road map of policy actions and steps designed to bring the economy out of recession and to a path of steady growth and prosperity.”
The government is betting that its objectives of greater stability and coherence between monetary, fiscal and trade policies, capital investment and domestic debt settlements among others will help diversify the economy, create jobs and halt four successive quarters of negative growth. Granted that the N529 billion capital vote on Power, Works and Housing, N262 billion for Transportation, N92 billion for Agriculture and N150 billion for Special Intervention Programmes are higher than 2016 votes, when juxtaposed with an exchange rate of N305 to US$1 and 18 per cent inflation, however, they don’t look so impressive. In real terms, it would pay for less than the N1.8 trillion capital outlay of 2016 of which only N753 billion had been released by the end of October.
We do not fully share the government’s upbeat mood. First, the failure of past governments to end the national addiction to crude oil revenues has placed this budget once more at the mercy of insurgents in the Niger Delta region whose bombs effectively derailed the 2016 budget. Projected daily production of 2.2 million was not met, averaging just 1.8 million bpd. In the event, the budget performance was poor. Apart from the low capital release, only N2.3 trillion revenue was realised in the nine months to September from the N3.9 trillion targeted for the year, with only N500 billion coming in from the N800 billion non-oil revenue target, and N200 billion out of the N300 billion customs revenue target. What effective steps has the government taken to stop militants blowing up production infrastructure? Former Presidents Umaru Yar’Adua and Goodluck Jonathan bribed the criminal gangs with an unsustainable amnesty programme and billions of naira to guarantee stable production levels. A plan to raise payments to ex-militants does not address the criminal cases against some, which provoked renewed militancy. This government should either go for broke via an all-out military campaign or continue paying ransom to the gangsters until the Nigerian state takes the rational step of enthroning fiscal federalism.
The budget may also crash if the government is unable to achieve its borrowing plan to finance the N2.36 trillion deficit with N1.06 trillion external borrowing and N1.25 trillion domestic borrowing. Already, the National Assembly has withheld approval of a $30 billion external loan package presented by the executive branch, while additional funding of N565.1 billion expected from recoveries from corruption investigations and trials is realisable only if the notorious judicial process suddenly becomes more efficient.
When in a recession, economists recommend expansionary budgets and stimulus to create jobs, boost consumer demand and production. The capital vote, given the contraction of the manufacturing sector to 9.33 per cent of Gross Domestic Product in Q1 2016, unemployment at 24.1 per cent and a broken infrastructure, is insufficient. Past experience shows also that slogan-rich schemes like the ones under the Special Intervention Programme often generate sound bites but make little impact on the high jobless rate.
Without massive inflow of Foreign Direct Investment through urgent privatisation and liberalisation, recession may persist. The N213 billion (less than $700 million) earmarked for the “modernisation” of the railways for instance will not make much difference in an economy of 170 million people served by only 3,500 kilometres of archaic rail tracks: modernising and expanding the rail system requires dollops of FDI through opening up the sector. Besides, the stimulus needed is not giving more money to the fiscally reckless states, but targeting sectors like SMEs, agriculture, manufacturing, mining and construction.
In the end, the budget leaves much to luck or chance – higher oil prices, reduced vandalism and securing debt and recoveries. It is not too late to rework the budget to reduce overheads by cutting non-essentials. Recurrent expenditure at N2.98 trillion is too high for a corrupt bureaucracy that delivers poverty instead of development. We need to drastically reduce the N1.8 trillion personnel costs and ministries, departments and agencies from over 542. Efforts should be made to quickly reduce the domestic debt to stimulate growth and funnel funding to manufacturing.
However, with stricter discipline and taming corruption, the hope is that recession could at least be halted, if not completely reversed.